Investors scarcely use mean-variance optimization when deciding on their actual portfolios. One of the main reasons they give is that efficient portfolios are systematically concentrated in a few assets. This article shows that such an allocation is achieved when portfolio risk and return are...

In a typical tactical asset allocation set up a manager receives compensation for his excess of return given a tracking error target. Critics of this framework cite its lack of control over the total portfolio risk. Current approaches recommend what we call a mixed allocation, derived from...