40 Shades Of Tactical Asset Allocation

Seeking Alpha has published an article of mine on Tactical Asset Allocation titled “40 Shades Of Tactical Asset Allocation Across Bull and Bear Markets”. The article uses data compiled from the AllocateSmartly website to compare the performance of public domain TAA strategies across 3 different market cycles: 1973-1980, 2000-2007, and 2007-2017.

Readers of this blog will be interested in knowing how the public domain strategies compare to the TAAS Strategies. I’m not going to attempt to create a synthetic backtest in an attempt to replicate performance of the TAAS Strategies during the 1973-1980 and 2000-2007 cycles. While such a backtest might be interesting in a theoretical sense; the ETFs used in the TAAS Strategies simply did not exist during the prior cycles and I can not build a credible backtest using surrogate mutual funds, indexes, and stocks.

Here is the ranking of the top 14 strategies used in the Seeking Alpha article for the 2007-2017 market cycle together with the results of the TAAS Strategies:

TAAS Global Aggressive topped the best performing public domain strategy by 4.5% and did so with a 2.2% lower Maximum Monthly Drawdown. TAAS Global Conservative, which is targeted to minimize drawdown, topped all but one of the public domain strategies with a Max DD 30.2% lower than the the top performer.

The TAAS Strategies are also more tax efficient than the top pubic domain performers and our rebalance process is less susceptible to allocation differences at closing. It is also worthy of note that no surrogates have been used in calculating real and backtested historical results for the TAAS Strategies. All of the funds used in the TAAS Strategies have traded during the entire lifetime of the reported results.

Researching such a wide variety of strategies led me to look at a variety of TAA methodologies and read a number of TAA papers I probably would never have otherwise seen. This has sparked several ideas for possible enhancements to both the Market Conditions Model and the TAA Strategies which I plan to evaluate and test in the near future.

Earl Adamy

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