The Tactical Adaptive Strategies Explained
A robust, definable and repeatable process that over time puts the balance of probabilities in our favor.
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
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.
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.
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.
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.
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.
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.
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.
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.
Tactical Adaptive Global
Tactical Adaptive Global provides broad exposure to domestic and international equities, fixed income, real estate, commodities and precious metals. Tactical Adaptive Global is intended for use as the primary strategy in a balanced tactical asset allocation portfolio. Read more about Tactical Adaptive Global in our whitepaper.
The chart and table shows back tested results for three full Full Market Cycles including the 2000-2002, 2007-2009, 2020, and 2022 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
The Fed’s aggressive management of monetary and interest rate policies have wrought critical long term changes in the credit markets. After flooding the markets with liquidity and cheap money from 2008 through 2021; the Fed has embarked on an aggressive monetary tightening intended to fight the inflation resulting from historic fiscal and monetary largess. Adapting to these conditions means returns must be earned by exploiting more corners of the credit markets as well as shorter interest rate cycles.
Tactical Adaptive Income provides conservative investors with a Fixed Income strategy which delivers outstanding returns, low drawdowns, and exceptionally low volatility. It is available as a single subscription or included in our All TAAStrategies subscription.
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, 2007-2009, and 2020 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 including the 2020 bear market. 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?
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 my family and with my subscribers.
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 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 TAAStrategies employ a robust, definable and repeatable process that over time puts the balance of probabilities in our favor.
What Is Earl's Strategy Development Process?
This post from my blog is instructive in describing the approach and priorities which I bring to my strategy development process.