Policy Weights & Tilts

Enter policy weights (must sum to 100%), then specify tactical tilts. Positive = overweight vs. policy; negative = underweight. Tilts must sum to 0%.

Asset class Policy % Tilt %

Global Equities

IG Bonds

Alternatives

Cash

Policy total: 100%

Tilt sum: 0% (must equal 0)

Capital Market Assumptions

Expected Returns (%/yr)

Global Equities %

IG Bonds %

Alternatives %

Cash %

Annualised Volatilities (%)

Global Equities %

IG Bonds %

Alternatives %

Cash %

Correlations

Equity–Bond

Equity–Alt

Bond–Alt

Tilt Impact Results

–

Policy Return

–

Tilted Portfolio Return

–

Return Impact of Tilt

–

Tracking Error

Information Ratio: – — if the tilt view is correct, the tilt adds – bps/year at – bps of tracking error.

Per asset class breakdown

Asset class	Policy wt.	Tilt	Tilted wt.	Active deviation	Return contrib. to tilt	TE contrib.

Policy return = weighted average return using policy weights. Tilted return = weighted average return using tilted weights. Return impact = tilted return − policy return = Σ (tilt_i × r_i). Tracking error = annualised volatility of the active portfolio return (tilted − policy) = √(δᵀ Σ δ) where δ is the vector of active deviations and Σ is the covariance matrix. Information ratio = return impact / tracking error. Results are illustrative and based on user-entered CMAs — actual outcomes will differ.

How to use this tool

Start with your strategic policy weights — the long-run target allocation from your Investment Policy Statement. Then enter a tactical tilt: positive numbers overweight an asset class vs. policy, negative numbers underweight it. Tilts must sum to zero (the total portfolio is still 100%).

The tracking error is the annualised standard deviation of the difference in returns between the tilted portfolio and the policy benchmark. A tilt of +5% equities / −5% bonds produces tracking error approximately equal to σ(equity − bond) × 0.05 = √(σ_eq² + σ_bond² − 2ρ_eq,bond × σ_eq × σ_bond) × 0.05. Higher active deviations and lower cross-asset correlation both produce higher tracking error.

The information ratio tells you how much expected return per unit of tracking error the tilt provides, conditional on the tilt view being correct. Most institutional TAA programmes target an information ratio above 0.5 for approved tactical tilts. An IR below 0.3 suggests the expected return improvement is not large enough relative to the active risk taken. See Tactical Asset Allocation Signals for how to build the return view that drives this calculation.