At a recent conference, I heard a large money manager say the following, "We do not market time, but we do take market tilts." Unfortunately, no one was able to ask the manager to clarify the difference between tilts and timing. Aren't they both forecasts?
I have used the phrase market tilts, but I am not sure that investors make or understand the distinction between the two concepts, timing and tilts. Although there are subtle differences, clarification of these terms is important.
Market timing is the adjustment of exposures in a portfolio based on forward-looking expectations. It is a time series forecast. Market tilts will be an adjustment of weightings or exposures based on the characteristics of the asset, strategy, or premia. It can also be a change in weightings based on the market environment regime. Market timing is analogous to trend-following while market tilts are associates with cross-sectional analysis. Both may require some view past behavior repeating itself.
A portfolio of alternative risk premia may start with the assumption of equal volatility or equal risk contribution. There is no view about the risk premia other than they may have different volatilities. A tilt suggests that the weighting of the portfolio may differ from some volatility equalization.
These conditional views may be considered forecast but should be grouped differently than a times series performance forecast. Nevertheless, we view that tilts are forecasts and should be give the same level of care and any timing decision.