TAAStrategies: The All Weather Strategies

(Updated 07/01/22)

There has been no shortage of talking heads ranging from FOMC members to economists to market timers; each expounding upon their views of the future. Inflation will be up. Inflation will be down. Recession ahead. No recession. Yields are going much higher. Yields are about to turn lower. Equities still in a bull market. Equities headed for a major bear market.

How to deal with all of this? Should we simply retreat into cash? Let’s see if we can find some answers in the 22+ years of history we have available for two of our TAAStrategies: the multi-sector Tactical Adaptive Global Strategy and the fixed income Tactical Adaptive Income Strategy.

Tactical Asset Allocation

First, a quick explanation of Tactical Asset Allocation (TAA).

Tactical Asset Allocation is an active management strategy that dynamically adjusts a portfolio’s asset allocation to current market conditions with the objectives of minimizing the potential for large losses and maximizing opportunities to improve returns. Tactical Asset Allocation employs a mechanical approach to selection of funds within a basket of low cost index funds. (More here in our whitepaper.)

Building The Table

I broke the 22 years of history into buckets for inflation, recessions, major changes in 10 year Treasury yields, and bull and bear markets. In each case, I started with the cycle closest to January 2000 and I further segregated each bucket according to direction by color coding each entry with light green for rising and light red for falling.

We end up with a useful cross section of conditions for comparison to the S&P 500, Adaptive Global, Vanguard Total Bond Fund, and Adaptive Income.:

• Inflation: 3 rising and 2 falling
• GDP: 3 growth cycles and 3 recessions
• 10 year Treasury Yield: 4 with rising yields and 4 with falling
• Bull and Bear markets: 3 bull markets and 4 bear markets

Results

Both Adaptive Global and Adaptive Income have provided consistently positive returns and surprisingly low drawdowns across all eight economic conditions during the 22+ years.

The table provides 26 results across 8 different economic conditions.

• Of the 26 results, the S&P 500 showed negative CAGRs for 9 and Vanguard Total Bond for 6 while Adaptive Global had 1 and Adaptive Income had 2.
• Even bigger differences show up in Maximum Drawdowns where the S&P 500 shows 20 results greater than 10%, 8 results of 20%+, and 6 of 30%+ compared to 5 results greater than 10% for Vanguard Total Bond, and 0 results greater than 10% for Adaptive Global and Adaptive Income.
• Looking at the largest drawdowns, the S&P 500 declined 50.8%, Vanguard Total Bond declined 12.7%, Adaptive Global declined 7.7% and Adaptive Income declined 3.9%.

Opportunity For Investors

Investors wishing to view month by month performance of the strategies will find detailed tables below.

The Adaptive Global and Adaptive Income strategies stand out for their ability to significantly lower risk and improve returns.They do so using a mechanical process where the effort is limited to portfolio rebalancing once a month. Investors seeking opportunities to better navigate uncertain future conditions would do well to consider these strategies. New subscriptions include a two month money back guarantee.

The TAAStrategies website includes numerous whitepapers and strategy details.

The TAAStrategies, A Short History describes the construction and evolution of the TAAStrategies.