Can someone explain how an investment strategy differs from asset allocation. This is creating some confusion in my mind as I observed that they represent two separate steps in the investment process. My view is that the they should be the same.
Off the top of my head: investment strategy would include when and how much to invest. AA only comes in to play once you have funds to invest.
I haven’t read the section, by my guess is that strategy allows for discussion of methods other than buy-hold-rebalance. Strategy may explain what rules you allow or disallow for security selection within asset classes, whether your IPS allows you to attempt market timing or not. Do you allow technical analysis or not. I suspect the asset allocation is actually a product of higher-up strategy decisions, but there may be confusion because one of the most common strategies is simply to have a stated asset allocation and just rebalance to it periodically.
“how an investment strategy differs from asset allocation” I do not know what the CFA answer is. The real answer in my experience (which hopefully is the CFA answer) is that investment strategy is broader and more durable, and that it frames asset allocation decisions. Investment strategy is broader because it covers decisions other than asset allocation (i.e. timing, sizing of bets, portfolio turnover, etc). It’s more durable because, while one can change their asset allocation relatively often, one’s investment strategy should persist through all market conditions, and only change when your personal circumstances dictate a change. It frames asset allocation decisions because AA decisions should always be made within the context of your investment strategy – i.e. the equity/FI allocation should be relative to your risk tolerance and investment objectives.