Tactical Asset Allocation – August 2016

There is not much to be said about August … it went up and down and ended off slightly for the month. We’ve had a good run from the late June swoon and the market deserved a rest. Both the US and Global Core strategies have maintained a broad market mix of large, mid and small cap stocks along with some fixed income and that has provided us with a low volatility portfolio. Global Core has also taken a liking to small doses of precious metals. I have been slowly increasing my personal commitment to Global Core and will continue to do so until the US and Global Strategies are equal weight.

The US Core Strategy returned -0.13% in July. For the Year-To-Date: return is 6.65%, Compound Annual Growth Rate is 10.11%, Maximum Daily Drawdown is 3.7%, and Daily Standard Deviation is a very low 6.3%. Full metrics for the past 9+- years are included in the Performance Tables.

The Global Core Strategy returned -0.81% in July. For the Year-To-Date: return is 6.94%, Compound Annual Growth Rate is 10.55%, Maximum Daily Drawdown is 2.1%, and Daily Standard Deviation is a very low 5.1%. Full metrics for the past 9+- years are included in the Performance Tables.

I started the website with one Core Strategy and two Satellite Strategies. During the past six months, I've developed and introduced a new Global Core Strategy and more recently put the finishing touches on an improved Global Satellite Strategy (formerly Unleveraged Satellite).

Improvements to the Global Satellite Strategy significantly reduce the benefits of employing the Leveraged Satellite Strategy. Global Satellite has the advantages of avoiding 2X Leveraged ETFs, including a broader basket of funds, and employing lower fund concentrations. I believe that the marginally improved returns of Leveraged Satellite do not compensate for the higher risk so the Leveraged Satellite Strategy has been discontinued.

The real benefit of Global Satellite comes with the pairing of Global Core with Global Satellite which provides significant improvement over the old US Core+Unleveraged Satellite.

I have spent a good deal of time on the Risk Model during the past two months. I tested a number of substitute data series in the Model and found that the substitutions have no material effect upon model performance. We will stick with the original data series knowing that the concepts underlying the Risk Model are very robust.

I have added a new data series to the Risk Model. Inclusion of the new data series results in absolutely no change in historical performance of the TAAS Strategies; however it  will allow us to avoid some potentially poor risk/reward situations resulting from extremely high valuations.

Note to readers: This was prepared on the afternoon of September 3rd but could not be posted to the website due to issues which arose in moving the website to improved hosting ... a process which was promised to be seamless but developed some glitches. The good news is that website performance is much improved. I apologize for the delay.

 

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2 thoughts on “Tactical Asset Allocation – August 2016”

  1. Thanks Earl, very pleased with results so far, and especially the low drawdown. I also am moving toward a 50/50 position in core/global core. The numbers look good!

  2. Hi! I could have sworn I�ve been to this website before but after browsing through some of the posts I realized it�s new to me.
    Nonetheless, I�m definitely happ I came acrross
    itt and I�ll be book-marking it and checking back often!

Comments are closed.

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 results tables are constructed for three full market cycles beginning in January 2000.

The Adaptive Global table shows backtested results through July 2018 followed by actual results. More information is available in the blog article: The TAAStrategies, A Short History.

The most recent market cycle covers January 2020 to date.

The second market cycle covers October 2007 through December 2019. The Adaptive Global and Adaptive Income strategies were developed using the first 10+- years of data from this cycle while the final years are actual.

The third market cycle covers January 2000 through September 2007. This market cycle was used to provide out of sample validation of strategy results from the second market cycle. The fact that the return and risk metrics for the third cycle are statistically comparable to those for the second cycle validates the process.

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. A number of the ETFs we use were not created until 2007+. In each case, we infill using predecessor Open End Funds (OEFs) for which the indexing and/or subclass is substantially similar to the ETF.

We have been asked if it is possible to extend backtests to the 1970’s. While a few publishers attempt this; we believe it is not possible to produce credible results for all but the most basic TAA strategies due to the lack of funds with substantially similar indexing and/or classification. Doing so would force me to stretch the term "substantial" far beyond my comfort level.

A blank month indicates that the strategy was in cash.

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 results tables are constructed for three full market cycles beginning in January 2000.

The Adaptive Income table shows backtested results through June 2019 followed by actual results. More information is available in the blog article: The TAAStrategies, A Short History.

The most recent market cycle covers January 2020 to date.

The second market cycle covers October 2007 through December 2019. The Adaptive Global and Adaptive Income strategies were developed using the first 10+- years of data from this cycle while the final years are actual.

The third market cycle covers January 2000 through September 2007. This market cycle was used to provide out of sample validation of strategy results from the second market cycle. The fact that the return and risk metrics for the third cycle are statistically comparable to those for the second cycle validates the process.

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. A number of the ETFs we use were not created until 2007+. In each case, we infill using predecessor Open End Funds (OEFs) for which the indexing and/or subclass is substantially similar to the ETF.

We have been asked if it is possible to extend backtests to the 1970’s. While a few publishers attempt this; we believe it is not possible to produce credible results for all but the most basic TAA strategies due to the lack of funds with substantially similar indexing and/or classification. Doing so would force me to stretch the term "substantial" far beyond my comfort level.

A blank month indicates that the strategy was in cash.

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.

The Adaptive Innovation table shows backtested results through June 2019 followed by actual results. More information is available in the blog article: The TAAStrategies, A Short History.

A blank month indicates that the strategy was in cash.

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)