The Real Economy
Economic growth continued to show signs of growth. On Friday (April 28th) the U.S. Department of Commerce announced that real economic growth, as measured by the Gross Domestic Product (GDP), increased at an annual rate of 1.8 percent in the first quarter of 2011. While anemic, this is real growth and follows a real GDP increase of 3.1 percent in the fourth quarter of 2010. While we hope for economic growth that tends to average 3.2 percent, we are always relieved that there is economic growth. However, slow growth will affect investing and this is the topic of this Investment Commentary.
The Financial markets
Stocks continued their upward march in the first quarter, with large-caps gaining almost 6%, while mid- and small-cap stocks posted gains approaching 8%. Overseas, returns were not as strong, though still good. Developed-market foreign stocks were up more than 3%, while emerging-market equities gained just under 2% for the quarter.Domestic high-quality, intermediate-term bonds didn’t fare as well, barely gaining ground in the first quarter, while foreign bonds did a bit better, with developed-market government bonds gaining 0.7% and emerging-market bonds climbing by almost 3%.
Core Principles: Minimizing Irrational Investing
Mutual fund investors earn lower returns on their actual investment dollars than the underlying funds themselves. This fact underscores the need for a strong underlying investment discipline. We need such discipline because as humans we are hardwired to fail as instinctive investors.
Humans are better decision makers in areas that increase basic survival odds. Our brains seek and extrapolate patterns easily, and react quickly to them – most often before we even know it, and this works well when there’s a rustle in the grass. There’s very little cost to running from a false threat, and huge cost to not running from a real one. But the same wiring that rewards the decision to run from nine of every two potential lion attacks wreaks havoc on decisions about investing. The quickness to process perceived patterns and react to information leaves no time to consider the underlying conditions that created the pattern and whether they remain in place. But with investing, those underlying conditions matter a lot.
The result is that the investing public, taken as a whole, makes decisions too quickly and largely in a reactive, instinctive way. Most investor actions are seen as driven by emotions of fear and greed, which leads to perceive risk inversely to reality: when things feel best, there is no negativity priced into investments, which makes them expensive and therefore more prone to drop in value if the rosy expectations of investors aren’t fully met. When people are most scared and least willing to accept risk, investments become very cheap.
For an interesting foray into emotional based decision-making, please look at some of the books listed on our on-line book shelf.
What has been clear to us for decades and what is now been better understood through research is that humans are wired to make investment mistakes, and success requires a discipline and framework that minimizes the likelihood and cost of these mistakes. Our view is that if you can articulate your investment strategy and if you have the discipline to follow your articulated strategy then you will do better than any investor who does not have a strategy almost regardless of the strategy itself.
In this commentary we wish to outline our preferred strategy to long-term investing.
Step 1—Strategic Allocations:
For all investors this step is both necessary and sufficient.
We array or allocate financial holdings into groupings that collectively have tended to optimize expected return relative to the risk taken. We consider these asset allocations as “Market Neutral” since the allocations have done well – irrespective of where we are in the business cycle.
Simply aligning savings and investments to strategic targets can have a profound impact on the long-term financial success of their investments. Over the long-run these allocations have not changed very much and therefore maintaining these targets are relatively easy. We discourage excessive “rebalancing” and see little reason to automatically do this on an annual basis; although we encourage re-allocating savings as well as re-adjusting withdrawals to keep your holdings aligned with the strategic allocations.
Strategic investing ignores the short term as a way to avoid fear- and greed-driven mistakes. By the same token, it doesn’t seek to profit from those shorter-term swings that result from others making those same decision errors. It is a true buy-and-hold approach that requires a very long time-horizon. Recognizing that an unwavering commitment is essential, proponents of strategic investing can be—in fact they must be—dogmatic. Dogma can be equated to religious zeal, but, in investing, the proponents of the strategic approach are actually more like agnostics. They don’t profess to have the answers to questions like how investments might perform over anything less than the very long term.
Step 2—Tactical Overlay:
However, there is no doubt that over the course of the “Business Cycle”, there are times when certain types of companies, industries, and instruments (stocks or bonds) can effectively fall into or out of favor. While a business cycle will last for years, these moments of transition associated with each phase of the cycle can be relatively short – perhaps as short as 3 months or as long as 24 months – in which specific types of investments appear to be relatively “underpriced” or relatively “overpriced.” By trimming or stopping investments to “overpriced” asset classes and adding or increasing investments in “underpriced” asset classes, it is possible to increase returns without increasing risk or lower risk without reducing returns.
These adjustments are considered “tactical.” We believe that tactical adjustments can make a difference; but we do not advocate that you invest all of your holdings in this manner. We believe that many individuals partake in a crude form of tactical asset allocation by moving in and out of investments that others (usually “pundits” have espoused. We would not want to subject more than 30 percent of anyone’s total long-term investments to such tactical adjustments. Following the herd and too much active trading tends to result in extra expenses, poor returns, and higher risk.
With a purely strategic approach, when asset class returns are below their long-term trend or when risk is above their long-term trend, the cost of being wrong is magnified. So while a strategic allocation reduces the chance of making allocation mistakes, it also stretches the cost of an allocation mistake. Maintaining a purely strategic allocation can require a bumpy road to get to average — which is why we think it is appropriate to try and identify aberrations from the trend within asset classes and either avoid or take advantage of those aberrations.
While it is easy to figure out tactical asset allocations in hindsight, the trick is to figure it out while it is happening. This takes a lot of effort and some leaps of faith; which is another reason we would encourage investors to hold the vast majority of investments tied to a strategic allocation.
Step 3—Scenario Analysis and Stress Testing:
We are constantly analyzing the real markets. We are also always reminding ourselves that financial markets are leading indicators of the real market. A “leading” indicator is one that foreshadows the real economy by 6-12 months. Business cycles are followed and maintained by keeping track of a plethora of “leading,” “concurrent”, and “lagging” indicators. Leading indicators “bottom out” 6-12 months before the “bottom” of the business cycle; the concurrent indicators hit bottom at the same time the as the business cycle, and the lagging indicators hit bottom about 6-12 months after the business cycle has hit bottom. It is information from all three sets of statistics that help us to know where we are in the business cycle.
The very soul of a financial bubble is market exuberance; which comes before the improvements in the real market. But stock price growth, for example, can’t be sustained unless real markets are growing and real markets often never grow fast enough and more importantly – they do not always grow. By it’s very nature a business cycle is a cycle because economic growth stabilizes and then slows only to grow again before it stabilizes.
We analyze the broad economic environment and underlying conditions, and consider the ways in which the current situation is similar or different from other periods. This review is done in conjunction with research done by others and in particular Litman-Gregory Analytics who then assess how financial markets might respond to different real market scenarios over the next 3-5 years. The real market scenarios are speculative but since we know we can’t predict the future we purposely use very different scenarios to better gauge the implications on different financial asset classes.
While the relationships between asset classes can be derived mathematically from past observations, this is arguably more art than statistics. We could not do this work without a lot of assistance from other researchers who share their thoughts and observations in open forums as well as through published research and who also talk to a lot of money managers as well. When speculating about the future, hubris is pervasive. We try hard to discount the noise by focusing on the math, but we also take solace in the fact that for the most part our recommended core holdings are based on the market neutral, historically tested, strategic asset allocations and not the tactical asset allocations.
Step 4—Fund Selection:
We recognize that, on average, most mutual funds do not do better than their benchmark index outlined in the fund’s prospectus. However, the evidence is also clear that a select group of mutual funds consistently do better than their index. Litman-Gregory Analytics started their business in the late 1970s looking for find managers with an identifiable and sustainable ability to beat their fund’s benchmark over time.
Where most investors go wrong in using active managers is that they chase performance and buy managers after a hot streak, hold on as they hit a weaker stretch, sell when the underperformance becomes intolerable, and then cycle into another manager riding a hot streak. This is a primary reason why the average fund investor earns returns far below the buy and hold records of the funds themselves. If this is you – we recommend that you stop reading about the latest “hot” manager and start using low cost index funds. Alternatively, if you want to chase performance we recommend that you turn this into a real strategy: like automatically reinvesting every 13 months into the funds with the hottest recent streaks – but this requires the discipline to sell every 13 months — regardless of what has happened. Doing this would a strategy you could articulate and carry out that would likely do a lot better than chasing performance without including an articulated strategy as to when to sell.
The primary reason we pay annual fees to Litman-Gregory is for the massive amount of due diligence they undertake to screen in and vet out mutual fund managers. Their due diligence requires visiting with and interviewing the managers and their teams – so that they can better access the articulated investment process. Data on what the fund managers actually do is readily available and has become increasingly easier to compare by subscribing to such data aggregating firms as Morningstar (to whom we also subscribe); but a core function of Litman-Gregory’s business is comparing, contrasting, and confronting the fund managers on variations in investment efforts. Their confidence in a fund management team is predicated on the ability to articulate and maintain discipline to their strategy over the course of time.
We believe that asset allocation and investment discipline are critical – but choosing mutual funds whose asset allocation drifts and whose investment discipline waivers removes the edge that a portfolio of actively managed mutual funds can ever have over lower cost index funds.
Why We Expect Below-Average Stock and Bond Returns in the Years Ahead
History suggests that decades of low returns are commonly followed by decades with much better returns. However, this post-it note version of history assumes that history matters more than fundamentals. We think fundamentals matter and that the fundamentals of today are different from anything experienced in the period since World War II. A more careful look at history doesn’t support presumptions of higher returns, but in fact supports arguments for slower growth and lower returns.
We currently believe that returns over the next five to 10 years are very likely to be well below long-term historical averages. We believe economic growth is likely to be subdued and this will mean subdued corporate earnings growth and therefore stock returns. Bond returns may be even lower, primarily because interest rates are at historically low levels. This means interest income from bonds will be low, and that there is little room for bond price appreciation (bond prices will rise if interest rates fall). Conversely, if interest rates rise, which we do expect to happen eventually, bond prices will be depressed.
Interest rates also have an effect on stock prices. When interest rates fall it makes stocks more attractive because there is less competition from safer investments that are directly tied to interest rates. The very high returns we saw in the 1980s and ’90s were helped a great deal by steadily declining interest rates. However these were declines in interest rates from what had been historically high levels.
Those two simple facets—slower economic growth and no help from interest rates—argue for lower returns from financial instruments.
Unfortunately, one can reach the same conclusion by looking closely at the nature and characteristics of job growth, the ebbs and flows in the housing markets, and the way in which consumers are responding to debt. The job market is very week; the housing market is weak; and personal debt is very high. Personal debt is much more onerous when home equity has been diminished (and is not increasing). Job loss, foreclosures and longer than usual durations of unemployment will likely keep housing equity depressed – despite the fact that mortgage interest rates are at historically low levels. Demand for housing is not outpacing supply and hence housing prices are not increasing very fast – if at all.
Advice for the Long-Term Investor
1. Money you know you will need in the next decade should not be in the stock market. Use an FDIC insured savings or money market account for that and just try and pay attention to intermediate term interest rates. As those rates start to increase you might consider using FDIC insured Certificates of Deposit as well. Your return relative to the risks taken will be far better in a savings account than in the stock market – particularly over the next five years and very likely over the next decade.
2. If you are not interested in investing and wish to keep your investment costs (both direct and indirect) as low as possible, then use an optimal strategic asset allocation for which you are comfortable and use passive or index mutual funds and index exchange traded funds to align your investments to your strategic allocation.
3. A tactical overlay is the only way to compensate for the below average returns. We have for the past 30 years felt that imposing a tactical overlay onto a strategic allocation would provide slightly higher returns at a slightly lower risk – and that while modest, these risk-adjusted differences were worth the time and expense to do, even after adding in the higher cost of actively managed mutual funds.
For the first time in our 30 years of investing we believe that the tactical overlay will make an even more substantial and profound difference on risk-adjusted returns than it has in the past. We say this because of how unusual we think this time is relative to any of the past 30 years in which we have been investing.
A key thesis of a strategic investment strategy is that once a suitable allocation mix is identified, one should not attempt to add value by deviating from that allocation because it is not realistic to expect to be able to do this with consistent success. This is why we keep most holdings in a strategic allocation. However, if we are correct about the years ahead, there will not only be below-average returns, but also higher volatility. Volatility can mean more periodic opportunities but it also means more risk.
We are not suggesting that investors apply a larger portion of their portfolio to a tactical overlay – rather we believe that the portion that is tactical will have an even larger than usual impact on diminishing overall investment risk and raising overall investment returns relative to the role such tactical allocations have contributed to portfolio performance in the past.
May 2011 Investment Commentary
by Friedland Financial on 01. May, 2011 in Financial Notes, Investment Commentaries
The Real Economy
Economic growth continued to show signs of growth. On Friday (April 28th) the U.S. Department of Commerce announced that real economic growth, as measured by the Gross Domestic Product (GDP), increased at an annual rate of 1.8 percent in the first quarter of 2011. While anemic, this is real growth and follows a real GDP increase of 3.1 percent in the fourth quarter of 2010. While we hope for economic growth that tends to average 3.2 percent, we are always relieved that there is economic growth. However, slow growth will affect investing and this is the topic of this Investment Commentary.
The Financial markets
Stocks continued their upward march in the first quarter, with large-caps gaining almost 6%, while mid- and small-cap stocks posted gains approaching 8%. Overseas, returns were not as strong, though still good. Developed-market foreign stocks were up more than 3%, while emerging-market equities gained just under 2% for the quarter.Domestic high-quality, intermediate-term bonds didn’t fare as well, barely gaining ground in the first quarter, while foreign bonds did a bit better, with developed-market government bonds gaining 0.7% and emerging-market bonds climbing by almost 3%.
Core Principles: Minimizing Irrational Investing
Mutual fund investors earn lower returns on their actual investment dollars than the underlying funds themselves. This fact underscores the need for a strong underlying investment discipline. We need such discipline because as humans we are hardwired to fail as instinctive investors.
Humans are better decision makers in areas that increase basic survival odds. Our brains seek and extrapolate patterns easily, and react quickly to them – most often before we even know it, and this works well when there’s a rustle in the grass. There’s very little cost to running from a false threat, and huge cost to not running from a real one. But the same wiring that rewards the decision to run from nine of every two potential lion attacks wreaks havoc on decisions about investing. The quickness to process perceived patterns and react to information leaves no time to consider the underlying conditions that created the pattern and whether they remain in place. But with investing, those underlying conditions matter a lot.
The result is that the investing public, taken as a whole, makes decisions too quickly and largely in a reactive, instinctive way. Most investor actions are seen as driven by emotions of fear and greed, which leads to perceive risk inversely to reality: when things feel best, there is no negativity priced into investments, which makes them expensive and therefore more prone to drop in value if the rosy expectations of investors aren’t fully met. When people are most scared and least willing to accept risk, investments become very cheap.
For an interesting foray into emotional based decision-making, please look at some of the books listed on our on-line book shelf.
What has been clear to us for decades and what is now been better understood through research is that humans are wired to make investment mistakes, and success requires a discipline and framework that minimizes the likelihood and cost of these mistakes. Our view is that if you can articulate your investment strategy and if you have the discipline to follow your articulated strategy then you will do better than any investor who does not have a strategy almost regardless of the strategy itself.
In this commentary we wish to outline our preferred strategy to long-term investing.
Step 1—Strategic Allocations:
For all investors this step is both necessary and sufficient.
We array or allocate financial holdings into groupings that collectively have tended to optimize expected return relative to the risk taken. We consider these asset allocations as “Market Neutral” since the allocations have done well – irrespective of where we are in the business cycle.
Simply aligning savings and investments to strategic targets can have a profound impact on the long-term financial success of their investments. Over the long-run these allocations have not changed very much and therefore maintaining these targets are relatively easy. We discourage excessive “rebalancing” and see little reason to automatically do this on an annual basis; although we encourage re-allocating savings as well as re-adjusting withdrawals to keep your holdings aligned with the strategic allocations.
Strategic investing ignores the short term as a way to avoid fear- and greed-driven mistakes. By the same token, it doesn’t seek to profit from those shorter-term swings that result from others making those same decision errors. It is a true buy-and-hold approach that requires a very long time-horizon. Recognizing that an unwavering commitment is essential, proponents of strategic investing can be—in fact they must be—dogmatic. Dogma can be equated to religious zeal, but, in investing, the proponents of the strategic approach are actually more like agnostics. They don’t profess to have the answers to questions like how investments might perform over anything less than the very long term.
Step 2—Tactical Overlay:
However, there is no doubt that over the course of the “Business Cycle”, there are times when certain types of companies, industries, and instruments (stocks or bonds) can effectively fall into or out of favor. While a business cycle will last for years, these moments of transition associated with each phase of the cycle can be relatively short – perhaps as short as 3 months or as long as 24 months – in which specific types of investments appear to be relatively “underpriced” or relatively “overpriced.” By trimming or stopping investments to “overpriced” asset classes and adding or increasing investments in “underpriced” asset classes, it is possible to increase returns without increasing risk or lower risk without reducing returns.
These adjustments are considered “tactical.” We believe that tactical adjustments can make a difference; but we do not advocate that you invest all of your holdings in this manner. We believe that many individuals partake in a crude form of tactical asset allocation by moving in and out of investments that others (usually “pundits” have espoused. We would not want to subject more than 30 percent of anyone’s total long-term investments to such tactical adjustments. Following the herd and too much active trading tends to result in extra expenses, poor returns, and higher risk.
With a purely strategic approach, when asset class returns are below their long-term trend or when risk is above their long-term trend, the cost of being wrong is magnified. So while a strategic allocation reduces the chance of making allocation mistakes, it also stretches the cost of an allocation mistake. Maintaining a purely strategic allocation can require a bumpy road to get to average — which is why we think it is appropriate to try and identify aberrations from the trend within asset classes and either avoid or take advantage of those aberrations.
While it is easy to figure out tactical asset allocations in hindsight, the trick is to figure it out while it is happening. This takes a lot of effort and some leaps of faith; which is another reason we would encourage investors to hold the vast majority of investments tied to a strategic allocation.
Step 3—Scenario Analysis and Stress Testing:
We are constantly analyzing the real markets. We are also always reminding ourselves that financial markets are leading indicators of the real market. A “leading” indicator is one that foreshadows the real economy by 6-12 months. Business cycles are followed and maintained by keeping track of a plethora of “leading,” “concurrent”, and “lagging” indicators. Leading indicators “bottom out” 6-12 months before the “bottom” of the business cycle; the concurrent indicators hit bottom at the same time the as the business cycle, and the lagging indicators hit bottom about 6-12 months after the business cycle has hit bottom. It is information from all three sets of statistics that help us to know where we are in the business cycle.
The very soul of a financial bubble is market exuberance; which comes before the improvements in the real market. But stock price growth, for example, can’t be sustained unless real markets are growing and real markets often never grow fast enough and more importantly – they do not always grow. By it’s very nature a business cycle is a cycle because economic growth stabilizes and then slows only to grow again before it stabilizes.
We analyze the broad economic environment and underlying conditions, and consider the ways in which the current situation is similar or different from other periods. This review is done in conjunction with research done by others and in particular Litman-Gregory Analytics who then assess how financial markets might respond to different real market scenarios over the next 3-5 years. The real market scenarios are speculative but since we know we can’t predict the future we purposely use very different scenarios to better gauge the implications on different financial asset classes.
While the relationships between asset classes can be derived mathematically from past observations, this is arguably more art than statistics. We could not do this work without a lot of assistance from other researchers who share their thoughts and observations in open forums as well as through published research and who also talk to a lot of money managers as well. When speculating about the future, hubris is pervasive. We try hard to discount the noise by focusing on the math, but we also take solace in the fact that for the most part our recommended core holdings are based on the market neutral, historically tested, strategic asset allocations and not the tactical asset allocations.
Step 4—Fund Selection:
We recognize that, on average, most mutual funds do not do better than their benchmark index outlined in the fund’s prospectus. However, the evidence is also clear that a select group of mutual funds consistently do better than their index. Litman-Gregory Analytics started their business in the late 1970s looking for find managers with an identifiable and sustainable ability to beat their fund’s benchmark over time.
Where most investors go wrong in using active managers is that they chase performance and buy managers after a hot streak, hold on as they hit a weaker stretch, sell when the underperformance becomes intolerable, and then cycle into another manager riding a hot streak. This is a primary reason why the average fund investor earns returns far below the buy and hold records of the funds themselves. If this is you – we recommend that you stop reading about the latest “hot” manager and start using low cost index funds. Alternatively, if you want to chase performance we recommend that you turn this into a real strategy: like automatically reinvesting every 13 months into the funds with the hottest recent streaks – but this requires the discipline to sell every 13 months — regardless of what has happened. Doing this would a strategy you could articulate and carry out that would likely do a lot better than chasing performance without including an articulated strategy as to when to sell.
The primary reason we pay annual fees to Litman-Gregory is for the massive amount of due diligence they undertake to screen in and vet out mutual fund managers. Their due diligence requires visiting with and interviewing the managers and their teams – so that they can better access the articulated investment process. Data on what the fund managers actually do is readily available and has become increasingly easier to compare by subscribing to such data aggregating firms as Morningstar (to whom we also subscribe); but a core function of Litman-Gregory’s business is comparing, contrasting, and confronting the fund managers on variations in investment efforts. Their confidence in a fund management team is predicated on the ability to articulate and maintain discipline to their strategy over the course of time.
We believe that asset allocation and investment discipline are critical – but choosing mutual funds whose asset allocation drifts and whose investment discipline waivers removes the edge that a portfolio of actively managed mutual funds can ever have over lower cost index funds.
Why We Expect Below-Average Stock and Bond Returns in the Years Ahead
History suggests that decades of low returns are commonly followed by decades with much better returns. However, this post-it note version of history assumes that history matters more than fundamentals. We think fundamentals matter and that the fundamentals of today are different from anything experienced in the period since World War II. A more careful look at history doesn’t support presumptions of higher returns, but in fact supports arguments for slower growth and lower returns.
We currently believe that returns over the next five to 10 years are very likely to be well below long-term historical averages. We believe economic growth is likely to be subdued and this will mean subdued corporate earnings growth and therefore stock returns. Bond returns may be even lower, primarily because interest rates are at historically low levels. This means interest income from bonds will be low, and that there is little room for bond price appreciation (bond prices will rise if interest rates fall). Conversely, if interest rates rise, which we do expect to happen eventually, bond prices will be depressed.
Interest rates also have an effect on stock prices. When interest rates fall it makes stocks more attractive because there is less competition from safer investments that are directly tied to interest rates. The very high returns we saw in the 1980s and ’90s were helped a great deal by steadily declining interest rates. However these were declines in interest rates from what had been historically high levels.
Those two simple facets—slower economic growth and no help from interest rates—argue for lower returns from financial instruments.
Unfortunately, one can reach the same conclusion by looking closely at the nature and characteristics of job growth, the ebbs and flows in the housing markets, and the way in which consumers are responding to debt. The job market is very week; the housing market is weak; and personal debt is very high. Personal debt is much more onerous when home equity has been diminished (and is not increasing). Job loss, foreclosures and longer than usual durations of unemployment will likely keep housing equity depressed – despite the fact that mortgage interest rates are at historically low levels. Demand for housing is not outpacing supply and hence housing prices are not increasing very fast – if at all.
Advice for the Long-Term Investor
1. Money you know you will need in the next decade should not be in the stock market. Use an FDIC insured savings or money market account for that and just try and pay attention to intermediate term interest rates. As those rates start to increase you might consider using FDIC insured Certificates of Deposit as well. Your return relative to the risks taken will be far better in a savings account than in the stock market – particularly over the next five years and very likely over the next decade.
2. If you are not interested in investing and wish to keep your investment costs (both direct and indirect) as low as possible, then use an optimal strategic asset allocation for which you are comfortable and use passive or index mutual funds and index exchange traded funds to align your investments to your strategic allocation.
3. A tactical overlay is the only way to compensate for the below average returns. We have for the past 30 years felt that imposing a tactical overlay onto a strategic allocation would provide slightly higher returns at a slightly lower risk – and that while modest, these risk-adjusted differences were worth the time and expense to do, even after adding in the higher cost of actively managed mutual funds.
For the first time in our 30 years of investing we believe that the tactical overlay will make an even more substantial and profound difference on risk-adjusted returns than it has in the past. We say this because of how unusual we think this time is relative to any of the past 30 years in which we have been investing.
A key thesis of a strategic investment strategy is that once a suitable allocation mix is identified, one should not attempt to add value by deviating from that allocation because it is not realistic to expect to be able to do this with consistent success. This is why we keep most holdings in a strategic allocation. However, if we are correct about the years ahead, there will not only be below-average returns, but also higher volatility. Volatility can mean more periodic opportunities but it also means more risk.
We are not suggesting that investors apply a larger portion of their portfolio to a tactical overlay – rather we believe that the portion that is tactical will have an even larger than usual impact on diminishing overall investment risk and raising overall investment returns relative to the role such tactical allocations have contributed to portfolio performance in the past.
Tags: emotional investing, strategic asset allocation, tactical asset allocation