Tactical Asset Allocation – August 2017

Tactical Asset Allocation Strategy Update


Global Core is up 0.02% for August and up 7.37% YTD

Treasuries have been the big gainer this month while Emerging Markets is up slightly. Domestic US Big Cap and International Equity were both down slightly. All-in-all a not unpleasant outcome considering the increased volatility during the month.


US and Global markets corrected during August while fixed income has edged upward. There is considerable uncertainty regarding future direction; however the Bears have, so far, failed to capitalize on apparent opportunities.

New Strategy for Hostile Markets

I recently completed a Featured Article covering the Market Risk Model complete with graphics showing historical and market condition segmented performance.

As a trader, during the 2000-2002 and 2007-2009 Bear Markets, I made some very large gains (20% during 2008) shorting equity futures. But I am no longer a trader and the TAAS Strategies are my primary investing activity. Yet it is very clear to me that a Bear Market lies somewhere ahead in the not too distant future and I'm not keen on spending a couple of years hunkered down making a few percent with the Core Strategy.

Bear Markets decline at roughly twice the speed that Bull Markets rally. The steep slope and acceleration should make for easy money for investors ... but they don't. The reason is that Bear Markets are subject to very short, very steep, and very violent rallies which are certain to violate any safety mechanisms put in place to insure against steep losses.

I know because, aside from trading Bear Markets, I've spent a good part of three years developing and testing hundreds of potential Bear Market TAA strategies which relied upon shorting equities. None of them met my personal requirements for low volatility and low drawdowns. The need to develop an effective strategy has become more urgent as the market has moved into more dangerous valuation levels.

The results from the Global Satellite (Hostile) basket have been integrated with the Performance Tables. You can see the back tested results here in the Strategies Performance Tables (look for the table labeled "Hostile" under Global Satellite). The Hostile Strategy deployed 3 times during the past 10 years for one Bear Market and two Corrections. In each case the Strategy delivered positive returns with very little drawdown. Overall, during the time the Hostile Strategy was deployed, it earned a CAGR of 14.47% with a Maximum Monthly Drawdown of 4.98%.

While I would love to see a 14% CAGR during the next Bear Market, depressed interest rates (as compared to 2007) argue for goals which are considerably more modest. I will be extremely satisfied if the Strategy can generate annual returns of 5% to 7% during the next Bear Market.

Earl Adamy

Tactical Asset Allocation Strategy Performance

Global Strategy (Conservative)

Month: 0.02% gain
Year-to-date: 7.37% gain
Full cycle-to-date (Sep 2007): 13.83% CAGR, 5.87% Max Monthly Drawdown

Global Strategy (Aggressive)

Month: 0.02% gain
Year-to-date: 7.37% gain
Full cycle-to-date (Sep 2007): 17.51% CAGR, 8.21% Max Monthly Drawdown

Tactical Asset Allocation Fund Basket Performance

Global Core

Month-to-date: 0.02% gain
Year-to-date: 7.37% gain
Full cycle-to-date (Sep 2007): 10.15% CAGR, 6.53% Max Monthly Drawdown

Global Satellite (includes Favorable & Hostile)

Month-to-date: hibernating since Nov 2014
Year-to-date: hibernating since Nov 2014
Full cycle-to-date (Sep 2007): 21.93% [email protected]*, 8.21% Max Monthly Drawdown

*CAGR for the Favorable and Hostile Market Conditions during which Global Satellite was invested

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