Tactical Asset Allocation – January 2019

Tactical Asset Allocation Strategy Update


Global Adaptive advanced 0.29% for January and YTD. Our positions in investment grade bonds and Treasuries avoided continued volatility in the equity markets while advancing modestly for the month.

This is the comment which accompanied the allocations at the end of November: "Our allocations for January show all domestic and international equities, commodities and precious metals under duress. The Tactical Model settled upon a large position in Treasury Bills and smaller positions in corporate bonds and mid-duration Treasuries with mid to low confidence. In essence, the Model is steering clear of everything but fixed income where it is taking on a bit more risk."

Adaptive Income advanced 0.52% on an end-of-month rally in investment grade bonds.


Equities have had a good run so far in January while bonds have barely moved. The S&P 500 has now recovered 62% of its decline from its all time high. The question on the table is whether it will eventually return to the all time high or the December low. As noted in this weekend's Market Monitor: "Major indexes continued working through resistance this week. While the internals deteriorated slightly this week and equities are overdue for a corrective decline, they still show no serious deterioration which would suggest that the rally is at risk of major failure.

Our goal is to preserve capital now and participate strongly in the next bull market when it arrives.

Outlook and Strategy

This month I thought it would be interesting to share the "7 Year Asset Class Real Return Forecast from GMO which generally has a pretty good track record in forecasting long term returns.

Worthy of note is the expected under performance of US large and small cap stocks and the expected out performance of international equities. The Global Adaptive Strategy which includes strong international exposure in equities, real estate, and commodities should fare well with this outlook. In any event, 7 years is a long time and Global Adaptive should do a good job of navigating the shifts across asset classes as they occur.

Subscriber Portal

While Adaptive Income will remain a secondary strategy as well as an indicator of market risk, I have created a separate page in the Subscriber Portal for this strategy.

The Global Adaptive and Adaptive Income pages are updated in near real-time with daily and month-to-date performance. These pages also include a performance chart and table. I generally get dividends posted within a day or two of x-date.

The Market Monitor page in the Subscriber Portal 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. I highly recommend checking this page on a weekly basis. While this information has no bearing on the Global Adaptive Strategy, this is where you will see signs of shifts in market conditions which may provide more informed perspective than what is generally available.

Earl Adamy