ETFs tempt more managers to try tactical asset allocation. By Nellie S. Huang, Senior Associate Editor August 3, 2012 Eric Biegeleisen is director of research at Windhaven Investment Management, an adviser in Boston.Tactical asset allocation seems to be all the rage among money managers. What exactly is this strategy? It’s different things to different people, but by and large it means making opportunistic investment decisions. Traders look at opportunities daily, weekly, monthly or annually. Tactical opportunities can even have multiple-year horizons. The boom in exchange-traded funds has led to the rise in tactical investing. There are more than 1,400 ETFs in the U.S., representing stocks, bonds, hard assets and currencies. Most are easily tradable on a daily basis. That gives tactical investors the tools they need to make the bets they want to make. SEE ALSO: Our Special Report on How to Be a Better Investor Advertisement Isn’t it just a fancy name for market timing? We don’t think so, although it is certainly more like market timing than, say, holding a core strategic position for longer periods. We review, rebalance and reallocate our tactical holdings every four months. We take action sooner if anything changes. Sounds risky. Windhaven’s funds aren’t 100% tactical. Each portfolio has a core allocation, too—an all-weather portfolio that can stand on its own. In our most conservative portfolio, only one-fifth of assets are invested tactically. But even in our most aggressive portfolio, only a little under half is tactical. More than half of the assets in all of our portfolios are invested in core strategic holdings. Advertisement Can investors do this on their own? Yes, but you have to figure out what and when to buy and how much. That’s hard to do. Those shooting from the hip are not likely to do well. We evaluate each asset class in relation to fundamental factors (such as price relative to various yardsticks), the economy and the mood of investors. We adjust our outlook for the risk we perceive in each asset, then rank them from most attractive to least attractive. Where do you see opportunities now? We recently added international real estate investment trusts to our tactical allocation. The tactical portfolio also holds tech stocks, stocks with growing dividends, U.S. REITs, U.S. high-yield bonds, U.S. investment-grade bonds, gold and Treasury inflation-protected securities. Kiplinger's Investing for Income will help you maximize your cash yield under any economic conditions. Download the premier issue for free.