Strategic asset allocation (SAA)

What it means

The long-run target mix of asset classes, set from the investor’s objectives and constraints.

The exam angle

Explains the large majority of the variation in a portfolio’s returns over time — far more than security selection.

Where it appears in the syllabus

• Asset AllocationCFA Level III · exam weight 15–20% · Capital market expectations, allocation principles, real-world constraints.
• Portfolio ConstructionCFA Level I · exam weight 8–12% · Risk and return, the CAPM, IPS construction, behavioural biases.

Related terms

• Efficient frontierThe set of portfolios offering the highest expected return for each level of risk.
• RebalancingTrading back to target weights after market moves have shifted them.
• Currency hedgingUsing forwards, futures or options to reduce a portfolio’s exposure to exchange rate movements on foreign assets.
• ImmunisationStructuring a bond portfolio so that price and reinvestment effects cancel, locking in a return over a horizon.
• Liability-driven investingManaging a portfolio against the liabilities it must fund rather than against a market index.
• Reinvestment riskThe risk that coupons and principal must be reinvested at a lower rate than expected.