Tactical Asset Allocation – July 2016

July proved the pundits wrong ... just as they were wrong for April, May, and June. What the pundits told us would be a bad year has turned out pretty well, although the year is not yet over. The pundits are telling us August will see a give-back. Maybe they'll be right ... the market has had a good run.

One of the great things about using a Tactical Asset Allocation Strategy is that the Strategies don't know what the pundits are saying and don't change direction with every new economic release. The Core Strategy Models look for longer trends and tell us how to position the portfolio for the month ahead. We rebalance it and forget it until the next rebalance. Is it perfect? No. But over the long term it does better than most humans and does so with very little effort and relatively small drawdowns.

The US Core Strategy returned 2.89% in July. For the Year-To-Date: return is 6.79%, Compound Annual Growth Rate is 12.03%, Maximum Daily Drawdown is 3.7%, and Daily Standard Deviation is a very low 6.5%. Full metrics for the past 9+- years are included in the Performance Tables.

The Global Core Strategy returned 3.09% in July. For the Year-To-Date: return is 7.81%, Compound Annual Growth Rate is 13.89%, 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.

While this year's Compound Annual Growth Rates for both Strategies are impressive, it's hard to see the market continuing to provide us with the returns we've enjoyed so far this year.

The Satellite Strategies remained in hibernation during July. The performance tables for the Satellite Strategies have new metrics for Compound Annual Growth Rate (CAGR). [email protected] covers the term of the report as in 12.96% for Sep 2007-Jul 2016 (107 months). [email protected] covers only the months during which the Satellite Strategy was actually invested as in 26.76% for 55 months. With the Satellite Strategies invested just 50%+- of the time, I think [email protected] provides a useful metric for evaluating the risk and reward of moving funds from Core Strategies to Satellite Strategies when market conditions are Favorable.

I spent much of July working with the market Risk Model. While I developed a number of variations which yielded small incremental improvements, the major takeaway is that the model, which uses widely dissimilar inputs, produces similar results with a broad variety of settings. This suggests that the Risk Model is robust and should continue to serve us well in the future.

 

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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.

 

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.

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.