Tactical Asset Allocation – October 2019

Tactical Adaptive Strategies Update Performance Adaptive Global gained 0.98% and 0.36% YTD. ¬†Positions in precious metals and equities were standout gainers while Treasuries and investment grade bonds produced small gains. Adaptive Income lost 0.61% and gained 0.95% YTD. Adaptive Income declined on weakness in high yield. (Note: the Tactical Model’s selection of mortgage bonds was … Read moreTactical Asset Allocation – October 2019

 

A Caveat

A 35+ year secular bull market in both equities and bonds began in 1982. The last cyclical bull market in equities (and to a lesser extent, bonds) began 10 years ago. Returns during these periods have been historically exceptional. Market returns for the next 10 years are highly unlikely to approach those of the past 10. In fact, there is at least some evidence that market returns have a high probability of being significantly lower and that bonds and equities (which have risen together) may actually begin working at cross purposes.

Investors should not use the statistics shown for our strategies to establish expectations of specific levels of returns or drawdowns. Investors should, however, appreciate that we believe the principles which underlie the Tactical Adaptive Global, Tactical Adaptive Income, and Tactical Adaptive Innovation Strategies are enduring enough to significantly outperform the market in the future, both in lowering risk and in improving returns.

 

A Caveat

A 35+ year secular bull market in both equities and bonds began in 1982. The last cyclical bull market in equities (and to a lesser extent, bonds) began 10 years ago. Returns during these periods have been historically exceptional. Market returns for the next 10 years are highly unlikely to approach those of the past 10. In fact, there is at least some evidence that market returns have a high probability of being significantly lower and that bonds and equities (which have risen together) may actually begin working at cross purposes.

Investors should not use the statistics shown for our strategies to establish expectations of specific levels of returns or drawdowns. Investors should, however, appreciate that we believe the principles which underlie the Tactical Adaptive Global, Tactical Adaptive Income, and Tactical Adaptive Innovation Strategies are enduring enough to significantly outperform the market in the future, both in lowering risk and in improving returns.

Tactical Adaptive Innovation underwent significant changes effective with the (Nov 29) rebalancing for December 2019. The changes are summarized below together with a table showing performance prior to changes through November 2019. CAGR increased slightly from 26.3% to 28.4%,  Max Monthly Drawdown remained unchanged at 12.2%, the Ulcer Index dropped from 5.6% to 5.1%, and the Up/Down Ratio increased from 280.2% to 336.9%. Annual performance for 2015 through 2017 was unchanged, 2018 decreased from 18.5% to 16.6%, and 2019 increased from 1.8% to 10.8%.

  • The number of Treasury ETFs was increased from 2 to 3 to include a short duration Treasury ETF
  • The long duration Treasury ETF was added to the eligible funds for Balanced conditions. This allows strongly performing Treasuries to complete effectively with the Innovation equities for selection.
  • The momentum scoring algorithm (Adaptive Dynamic Momentum) was not modified
  • The allocation algorithm was changed from Volatility to Limited Portfolio Volatility which caps the expected total portfolio volatility. This has the effect of reducing the fund allocation when fund volatility exceeds the targeted portfolio volatility, typically when fund volatility is sharply increasing.

A Caveat

A 35+ year secular bull market in both equities and bonds began in 1982. The last cyclical bull market in equities (and to a lesser extent, bonds) began 10 years ago. Returns during these periods have been historically exceptional. Market returns for the next 10 years are highly unlikely to approach those of the past 10. In fact, there is at least some evidence that market returns have a high probability of being significantly lower and that bonds and equities (which have risen together) may actually begin working at cross purposes.

Investors should not use the statistics shown for our strategies to establish expectations of specific levels of returns or drawdowns. Investors should, however, appreciate that we believe the principles which underlie the Tactical Adaptive Global, Tactical Adaptive Income, and Tactical Adaptive Innovation Strategies are enduring enough to significantly outperform the market in the future, both in lowering risk and in improving returns.