Building A High Performance Tactical Income Strategy

The initial version of our Adaptive Income Strategy was an attempt to see what could be done with a very simple fund basket using Adaptive Dynamic Momentum and our recently upgraded Tactical Model. The results turned out better than expected. When a subscriber asked about a fixed income strategy, I made it available and a number of us have been using it for some months now.

While the volatility was within acceptable range, I felt that it could be significantly improved in both Compound Annual Growth Rate (CAGR) and Maximum Monthly Drawdown (MaxMD). That led to development of the upgraded Adaptive Income Strategy which rings the bells on both high performance (11.1% full cycle CAGR) and very low drawdowns (2.9% full cycle MaxMD). Development of the Adaptive Income Strategy required the addition of several new features to the Tactical Model. The most exciting addition is the ability to optimize and extend fund holding periods by giving existing holdings priority for the next rebalance as long as expected performance is not impaired.

Work on the Adaptive Income Strategy required setting aside development work to improve the Market Conditions Model which is fairly well along but requires some finishing touches followed by extensive testing. I expect to release it late Summer or early Fall. A project is in the concept stage is a new strategy which will focus the capabilities of our Market Conditions and Tactical Models on sectors within high tech to provide lower-risk exposure to sectors and industries which lead our economy.

Now on to our story about building the Tactical Adaptive Income Strategy.

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Exceptional results are due entirely to the complementary strengths of our Market Conditions Model and our Tactical Model.

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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.

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.