What is an essential feature of tactical asset allocation?

Tactical asset allocation is primarily characterized by its adaptability and responsiveness to short-term market conditions. This strategy allows investors to shift their asset allocation in response to market trends, economic data, and other impactful factors, making it a dynamic investment approach. By adjusting the portfolio weights based on current and expected performance of different asset classes, investors aim to capitalize on market inefficiencies and enhance returns over relatively short time frames.

In contrast, other features listed do not encapsulate the essence of tactical asset allocation. A long-term investment horizon typically aligns more with strategic asset allocation, which is focused on maintaining a consistent portfolio mix over extended periods. Commitment to a single asset type contradicts the fundamental principle of tactical asset allocation, which involves diversification and flexibility in responding to market conditions. Lastly, a focus on index funds tends to emphasize passive management strategies that do not seek to exploit market inefficiencies, whereas tactical asset allocation is about taking advantage of such opportunities through active management.