Tactical Asset Allocation – January 2017

Performance

Global Core finished January up 1.25% and US Core was up 1.25% with holdings identical to Global Core.

Upgraded Global Core

The upgraded Global Core is an incremental improvement to US Core. I believe that the upgraded Global Core Strategy will better serve subscribers (including our personal portfolio) than US Core. The tax consequences of shifting holdings from US Core to the upgraded Global Core are not material. Effective with the December 30 rebalance, I moved all of our TAAS Strategy investments to the upgraded Global Core. I will continue to publish the US Core Strategy for subscribers who are not comfortable making the shift at this time.

Markets

Treasury ETFs have declined sharply from their all time highs last July. While the drop in Treasury prices has reduced our Strategy return; I am pleased that the decline is occurring while equity prices are rising. This will provide more room for Treasuries to cushion a future decline in equities.

Equity valuations remain extremely high; however investors are showing few signs of concern (per my Weekly Market Analyst blog). We remain in conservative strategies which emphasize capital preservation over growth.

Website update

TAAStrategies is undergoing a major upgrade. The email upgrade was completed in December, performance charts and tables were upgraded in January, and an all new website will appear in February.

Tactical Asset Allocation Fund Basket Performance

Global Core

Month-to-date: 1.25% gain
Year-to-date: 1.25% gain
Full cycle-to-date (Sep 2007): 10.22% CAGR, 6.53% Max Monthly Drawdown

Performance table (updated after the close each month)

Global Satellite Strategy

Month-to-date: hibernating since Nov 2014
Year-to-date: hibernating since Nov 2014
Full cycle-to-date (Sep 2007): 25.90% [email protected], 8.2% Max Monthly Drawdown

Performance table (updated after the close each month)

Other Strategies

US Core Strategy

Month-to-date: 1.25% gain,
Year-to-date: 1.25% gain
Full cycle-to-date (Sep 2007): 10.37% CAGR, 7.14% Max Monthly Drawdown

Performance table (updated after the close each month)

 

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3 thoughts on “Tactical Asset Allocation – January 2017”

    • [email protected] excludes months not in invested in Strategy or in cash (no risk). There are 113 months in the period Sep 2007 – Jan 2017. [email protected] of 11.85% is the CAGR over the entire 113 months. [email protected] of 25.90% is the CAGR during the 55 months the Satellite Strategy was invested. Since we can incur Drawdown only when the Strategy is invested, it is useful to relate Drawdown to the CAGR during the same period.

      We can compare Core [email protected] of 10.63% and Max Drawdown of 6.90% to Satellite [email protected] of 12.90% and Max Drawdown of 13.22% and see that while we are taking additional risk in the Satellite Strategy, we are being compensated for it.

      A companion comparison is the Up/Down Ratio of 339.64% for Core versus 409.33%. While both are exceptionally high ratios, the higher ratio for the Satellite Strategy tells us that it is more efficient per unit of risk.

Comments are closed.

Our standard tables are constructed for one full market cycle beginning in October 2007. The fund baskets for our tactical strategies are constructed from Exchange Traded Funds (ETFs) with just two exceptions, an Open End Fund and a Closed End Fund, both with long history. Fund sponsors did not begin the heavy rollout of Exchange Traded Funds until 2005 - 2006 so prior history is often unavailable.

We make extensive use of index funds and most of those have predecessor Open End Funds (OEFs) using the same index,. We use infill from Open End Funds to construct fund "similar" tables for two full market cycles beginning in 2000. In each case where we have used an Open End Fund for infill, we consider the indexing and/or subclass to be substantially similar to the ETF. Aside from providing insight into possible strategy performance during a second cycle, they also offer the advantage of completely out of sample data.

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.

Our standard tables are constructed for one full market cycle beginning in October 2007. The fund baskets for our tactical strategies are constructed from Exchange Traded Funds (ETFs) with just two exceptions, an Open End Fund and a Closed End Fund, both with long history. Fund sponsors did not begin the heavy rollout of Exchange Traded Funds until 2005 - 2006 so prior history is often unavailable.

We make extensive use of index funds and most of those have predecessor Open End Funds (OEFs) using the same index,. We use infill from Open End Funds to construct fund "similar" tables for two full market cycles beginning in 2000. In each case where we have used an Open End Fund for infill, we consider the indexing and/or subclass to be substantially similar to the ETF. Aside from providing insight into possible strategy performance during a second cycle, they also offer the advantage of completely out of sample data.

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.

Our standard tables are constructed for one full market cycle beginning in October 2007. The fund baskets for our tactical strategies are constructed from Exchange Traded Funds (ETFs) with just two exceptions, an Open End Fund and a Closed End Fund, both with long history. Fund sponsors did not begin the heavy rollout of Exchange Traded Funds until 2005 - 2006 so prior history is often unavailable.

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.

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.