Dynamic asset allocation
Dynamic asset allocation is a strategy used by investment products such as hedge funds, mutual funds, credit derivatives, index funds, principal protected notes (also known as guaranteed linked notes) and other structured investment products to achieve exposure to various investment opportunities and provide 100% principal protection.
Dynamic asset allocation includes CPPI, which consists of a guarantee, notionally related to a zero-coupon bond and an underlying investment. Assets are dynamically shifted (or allocated) between these two components depending largely on the performance of the underlying investments, and based on some .
In some cases, certain products can use a borrowing facility to enhance exposure if the underlying investments experience strong returns. If the underlying investments decline in value, CPPI automatically deleverages, reducing exposure in falling markets.
The term 'Dynamic Asset Allocation' is used interchangeably with the term Tactical asset allocation by many investment firms and commentators, although Dynamic Asset Allocation investment mandates tend to be fully-funded (while Tactical Asset Allocation mandates can be either fully-funded or represent an unfunded derivatives overlay). [1][2][3]
See also
- Tactical asset allocation
- Constant proportion portfolio insurance
- Hedge funds
- Mutual fund
- Credit derivative
- Index fund
- Principal protected note
- Structured investment product
- Zero-coupon bond
- ^ Meir Statman, The 93.6% Question of Financial Advisors, Journal of Investing, Spring 2000
- ^ http://www.baring-asset.com/document/inst/ldnprd_005441
- ^ http://www.nobletrading.com/blogs/2008/06/what-is-dynamic-asset-allocation.html