The Tactical Adaptive Strategies Explained

A robust, definable and repeatable process that over time puts the balance of probabilities in our favor.

Number One

Identify Market Conditions

The Market Conditions Model measures equity and fixed income market conditions in a probabilistic way. For example, it may signal Favorable conditions if there is a high probability of a market rise with low risk. However, a signal of Favorable conditions is not a guarantee of a Bull Market nor does a signal of Hostile conditions presage, with certainty, a Bear Market. However, the three conditions, when coupled with the appropriate fund baskets, work incredibly well in lowering risk and improving returns across full market cycles

Market Conditions 2000 - 2020

Number Two

Select Fund Basket

The Tactical Model selects a fund based on Market Condition Favorable, Balanced, or Hostile. Each fund basket consists of Exchange Traded Funds which have been carefully selected and validated for a specific market condition.

Favorable

A strongly trending market with little risk of major decline. Unexpected declines are likely to be temporary and relatively short-lived.

The fund basket emphasizes domestic and international equities supplemented with real estate, commodities and fixed income.

Balanced

Risks of market decline and opportunity for advance are roughly equal; however conditions are supportive of increased volatility and uncertainty.

The fund basket includes a mix of larger domestic and international equity funds together with a complement of high quality fixed income.

Hostile

High risk of extended market Correction (10%+) and Bear Market (20%+) declines and large equity drawdowns.

The fund basket emphasizes a broad spectrum of government fixed income together with a limited selection of large cap equity funds and commodities.

Number Three

Rank, Select, and Allocate

The Tactical Model then ranks, selects and allocates the best performing funds from the selected basket. Should there not be sufficient "best performing funds", the allocation is assigned to cash.

Rank

Four years of research and development went into Adaptive Dynamic Momentum, our ranking algorithm.

While most tactical ranking is performed using fixed length periods; Adaptive Dynamic Momentum identifies the optimum ranking criteria for each fund, each week.

The much improved trend identification results in higher returns and lower drawdowns.

Select

Fund ranking is just the beginning of the process for selecting funds for the next rebalance.

We are just as interested in how well a fund is likely to continue performing in the future as how well it has performed in the past.

Adaptive Dynamic Momentum assigns a confidence level to each fund's trend ranking. We use the combined ranking and confidence level to make the final selections.

Allocate

Once the funds eligible for the next rebalance are selected, portfolio weights are assigned to each fund.

We employ volatility weighting algorithms which allocates larger percentages to funds with low volatility and smaller percentages to funds with high volatility.

The small decrease in return is offset with a larger decrease in portfolio volatility.

It requires just a few minutes each month to rebalance the portfolio using the monthly Rebalance Notice.

STRATEGY RESULTS

Tactical Adaptive Global

Tactical Adaptive Global provides broad exposure to domestic and international equities, fixed income, commodities and precious metals. Tactical Adaptive Global is intended for use as the primary strategy in a tactical asset allocation portfolio. Read more about Tactical Adaptive Global in our whitepaper.

The chart and table shows back tested results for two full Full Market Cycles including the 2000-2002 and 2007-2009 bear markets and continuing through the most recent month. Dividends are included. The table, also produced by the Tactical Model, shows month by month and annual returns together with summary statistics. Tables are also included for the benchmark S&P 500 and Vanguard Balanced Index Fund.

Tactical Adaptive Income

There are at least two good reasons to consider a tactical fixed income strategy to supplement a broad market tactical strategy:

  • Eating distributions - some investors would prefer to withdraw distribution income for living expenses than “eat the seed corn”.
  • Tactical diversification - it is exceedingly unwise to put all your eggs in one basket, even when that basket looks far better than all the other baskets on display.

The TAAS Tactical Adaptive Income Strategy provides subscribers with a Fixed Income strategy which delivers outstanding results coupled with low drawdowns. Read more about Tactical Adaptive Income in our whitepaper.

The chart and table shows back tested results for two full Full Market Cycles including the 2000-2002 and 2007-2009 bear markets and continuing through the most recent month. Dividends are included. The table, also produced by the Tactical Model, shows month by month and annual returns together with summary statistics. Tables are also included for the benchmark S&P 500 and Vanguard Balanced Index Fund.

Tactical Adaptive Innovation

If you've ever been tempted to dip your investment toe into the leading edges of innovation but were put off by the high volatility; Tactical Adaptive Innovation may just fit the bill for a "big toe" portion of your portfolio. Businesses of interest include big data and analytics, nanotechnology, genetics, medicine and biotechnology, networks, energy and environment, robotics, 3-D printing, bioinformatics, and financial services.

Innovation will continue in virtually any economic scenario you can envision!

The TAAS Tactical Adaptive Innovation Strategy employs a small basket of innovation ETFs for exposure during Balanced and Favorable market conditions and Treasury ETFs as a safe-haven during Hostile market conditions and when innovation ETF TrendScores are insufficient to warrant an allocation. The Strategy delivers outstanding results coupled with moderate drawdowns. Read more about Tactical Adaptive Innovation in our whitepaper.

The chart shows back tested results for nearly 6 years. Dividends are included. The table, also produced by the Tactical Model, shows month by month and annual returns together with summary statistics. Tables are also included for the benchmark S&P 500 and Vanguard Balanced Index Fund.

What makes our strategies well worth the annual subscription price?

Low Volatility

I have tested many thousands of tactical strategies and, in every case, my first focus has been on drawdowns, then returns.

The strategies which have resulted from this discipline are strategies in which I have confidence sharing with our family and subscribers.

Market Conditions

One strategy does not fit all markets.

The integration of our Market Conditions Model, condition-specific fund baskets, and Tactical Model yields strategy combinations which are designed to navigate the full spectrum of market conditions.

Selection & Allocation

Our algorithms for selection and allocation of funds to each rebalancing are unique.

Adaptive Dynamic Momentum, which increases the accuracy and timeliness of trend identification, is coupled with confidence based selection algorithms and volatility weighting.

This combination provides the unique building blocks for the TAAS Tactical Adaptive Global, Tactical Adaptive Income, and Tactical Adaptive Innovation Strategies which lowers your risk and improves your returns well beyond the capabilities of traditional Asset Allocation methods.

The TAAS Strategies employ a robust, definable and repeatable process that over time puts the balance of probabilities in our favor.

Download the TAAS Strategies FactSheets

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.

Ready to get started?

Compares performance of the Tactical Adaptive Strategies to the S&P 500 and Vanguard Balanced Index Fund

Supporting tables for Tactical Adaptive Global. S&P 500 (SPY) and Vanguard Balanced Index Fund (VBINX) can be found below

Our backtest results tables are constructed for two full market cycles beginning in January 2000.

The most recent market cycle covers October 2007 to date. The fund baskets for our tactical strategies are constructed from indexed Exchange Traded Funds (ETFs) with just two exceptions, an Open End Fund and a Closed End Fund, both with long history.

The earlier market cycle covers January 2000 through September 2007. A number of the ETFs we use were not created until later in the decade. For those cases, we infill using predecessor Open End Funds (OEFs) for which the indexing and/or subclass is substantially similar to the ETF. Aside from providing insight into possible strategy performance during a second, earlier, cycle, they also offer the advantage of completely out of sample data. The fact that the metrics of both cycles are very comparable appears to validate the process.

We have been asked if it is possible to extend backtests to earlier decades. While this appears to be a common practice with some services; it is not possible to produce credible results for many strategies due to the lack of funds with substantially similar indexing and/or subclass. Doing so would force me to stretch the term "substantial" far beyond my comfort level.

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.

Benchmark S&P 500 (SPY)

Benchmark Vanguard Balanced Index Fund (VBINX)

Compares performance of the Tactical Adaptive Strategies to the S&P 500 and Vanguard Balanced Index Fund

Supporting tables for Tactical Adaptive Income, S&P 500 (SPY) and Vanguard Balanced Index Fund (VBINX) can be found below

Our backtest results tables are constructed for two full market cycles beginning in January 2000.

The most recent market cycle covers October 2007 to date. The fund baskets for our tactical strategies are constructed from indexed Exchange Traded Funds (ETFs) with just two exceptions, an Open End Fund and a Closed End Fund, both with long history.

The earlier market cycle covers January 2000 through September 2007. A number of the ETFs we use were not created until later in the decade. For those cases, we infill using predecessor Open End Funds (OEFs) for which the indexing and/or subclass is substantially similar to the ETF. Aside from providing insight into possible strategy performance during a second, earlier, cycle, they also offer the advantage of completely out of sample data. The fact that the metrics of both cycles are very comparable appears to validate the process.

We have been asked if it is possible to extend backtests to earlier decades. While this appears to be a common practice with some services; it is not possible to produce credible results for many strategies due to the lack of funds with substantially similar indexing and/or subclass. Doing so would force me to stretch the term "substantial" far beyond my comfort level.

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.

Benchmark S&P 500 (SPY)

Benchmark Vanguard Balanced Index Fund (VBINX)

Compares performance of the Tactical Adaptive Strategies to the S&P 500 and Vanguard Balanced Index Fund

Supporting tables for Tactical Adaptive Innovation, S&P 500 (SPY) and Vanguard Balanced Index Fund (VBINX) can be found below

The Innovation ETFs used in the Innovation Strategy were not established until 2014-2015 so our history is limited. There are no predecessor funds which are similar enough to use for infill.

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.

Benchmark S&P 500 (SPY)

Benchmark Vanguard Balanced Index Fund (VBINX)