Differences between Tactical and dynamic asset allocation and active and passive choices

CFA Level III Portfolio Management
#1

I saw one paragraph in curriculum

“There are two dimensions of passive/active choices. One dimension relates to the management of the strategic asset allocation itself—for example, whether to deviate from it tactically or not. The second dimension relates to passive and active implementation choices in investing the allocation to a given asset class. Tactical and dynamic asset allocation relate to the first dimension; active and passive choices for implementing allocations to asset classes relate to the second dimension.”

My question is where is the difference? I thought Tactical is passive while dynamic asset allocation is active allocation. It can’t be active but tactical assets allocation or passive with dynamic asset allocation, isn’t it?

#2

For the first dimension, is relative to the SAA. If you are being passive, then you will just stick to the SAA. If you are being active, then you will use TAA (short-term signals) /DAA (long-term valuation signals).

For the second dimension, is relative to the manager’s benchmark. Being passive here means your portfolio allocation/security selections are the same as the benchmark (expected alpha = 0).

Being active means your portfolio allocation/security selections are different from the benchmark (trying to generate positive alpha).

Passive/Active management
#3

Thank you Fino. Your answer is really helpful.

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