Tactical Asset Allocation – December 2017

Tactical Asset Allocation Strategy Update


Global Core is up 0.89% for December and up 12.71% for the year 2017.

Emerging Market equities and Precious Metals led the percentage gainers for the month. Big cap domestic was the major dollar contributor. Small caps and Treasuries were flat.

Outlook and Strategy

The TAAS Global Conservative Strategy lagged its benchmark Vanguard Balanced Index Fund this year by 1.24%. It has done so for two other calendar years during this full market cycle: 2015 by 2.60% and 2012 by 2.36%. It has out-performed for the remaining 7 calendar years: 2016 by 2.15%, 2014 by 1.21%, 2013 by 12.47%, 2011 by 10.32%, 2010 by 13.74%, 2009 by 3.5%, and 2008 by 28.09%.

It is abundently clear that we are in very late stages of this bull market and it is not uncommon for tactical stratgies to lag a bit in late bull markets. However this is more than compensated for by reduced bear market drawdowns and early bull market out-performance. For the full market cycle to-date, the Global Conservative Strategy has provided a CAGR of 13.37% with a 5.86% Maximum Monthly Drawdown versus the benchmark of just 6.94% with a 32.57% Maximum Monthly Drawdown.

My market "crystal ball" is no better than you will find elsewhere so I have no idea of when "the top" will arrive. The extreme historical valuation suggests that it could arrive tomorrow. Momentum is extreme and overdue for a pullback but remains bullish. Credit conditions suggest "not yet". 

I think it's quite likely we see a minimum 5%-10% pullback during the first quarter of 2018. From there we could see a rally which fails ("the top") or we could see a run to SPX 3000+-. That's probably about as high as this bull market runs.

Global Core is perfectly capable of switching from Equities to Fixed Income (cash and/or Investment Grade Bonds and Treasuries) on a timely basis; however it is not going to "nail" the exact top in Equities.

Revision to Satellite (Hostile) basket

Continued research and testing with the Satellite (Hostile) basket has led to my decision to sacrifice some return in the interest of reducing volatility and drawdowns. I believe this is a prudent trade-off for a time when investors are already under stress in Corrections and Bear Markets. Satellite (Hostile) [email protected] Risk, which measures returns for the period during which the basket is invested, drops from 13.84% to 10.68%. Maximum Monthly Drawdown drops from 8.0% to 3.5%.

Daily and Weekly Website Updates

The Proforma "Portfolio" page is updated in near real-time with daily and month-to-date performance. I generally get dividends posted within a day or two of x-date. This page now includes the date of the next Rebalance Notice as well as the next Rebalance Date.

The "Market Monitor" page is updated each weekend. It provides an updated assessment on the health of the equity market as well as interest rates, commodities, and precious metals.

Earl Adamy

Tactical Asset Allocation Strategy Performance

Global Strategy (Conservative)

Month: 0.89% gain
Year-to-date: 12.71% gain
Full cycle-to-date (Sep 2007): 13.37% CAGR, 7.14% Max Monthly Drawdown

Global Strategy (Aggressive)

Month: 0.89% gain
Year-to-date: 12.71% gain
Full cycle-to-date (Sep 2007): 16.24% CAGR, 8.22% Max Monthly Drawdown


Tactical Asset Allocation Fund Basket Performance

Global Core

Month-to-date: 0.89% gain
Year-to-date: 12.71% gain
Full cycle-to-date (Sep 2007): 10.46% CAGR, 6.54% Max Monthly Drawdown

Global Satellite (includes Favorable & Hostile)

Month-to-date: hibernating since Jul 2016
Year-to-date: hibernating since Jul 2016
Full cycle-to-date (Sep 2007): 20.52% [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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