I get things right more often than not which is critical to success in the financial markets. However, I devoted a few paragraphs in the November Update to the "not" which does happen:
Global Core suffered under the weight of falling bond prices, reduced US equity exposure, and falling international equities. The sudden reversal in international markets, particularly emerging, was driven by the precipitous, post-election rise in both US interest rates and the US dollar.
Global Core's performance this month [a 1.24% loss] was a disappointment because it was a drag on overall portfolio results to the tune of a 3.3% negative differential to US Core. That differential turned what would have been a 2.06% gain in a 100% US Core portfolio into a 0.48% portfolio gain in my personal portfolio which held an equal weighted mix of US Core & Global Core.
Our backtested performance tables have always shown that US Core modestly outperforms Global Core in both CAGR and MaxDD; however I believe that the broader ETF basket is likely to provide improved opportunities in the future. I am going to devote my December research to finding adjustments which will make effective use of the broader ETF basket but with less volatility.
Another key to success in the financial markets is in quickly recognizing and correcting mistakes. In this case, a broader ETF basket is ideal but the combination of conditions which resulted in an over-sized allocation to riskier assets was not. My research objectives for fixing Global Core became quite simple: 1) maintain exposure to international and precious metals asset classes, 2) reduce the risk of that exposure, and 3) approximate the performance of US Core in both Compound Annual Growth Rate and Maximum Daily Drawdown.
As it turned out, the solution was rather simple. I put the original Global Core aside and began working toward "globalizing" the US Core. I also tightly controlled exposure to the additional funds. The results achieved all three objectives.
Here is the upgraded Global Core Strategy with expanded fund basket:
and here is the established US Core Strategy:
While the overall results are very similar, it is notable that we get a 0.57% reduction in Maximum Daily Drawdown (7.47% to 6.90%) while increasing equity exposure by 0.48% and alternative asset exposure from 0% to 1.71%.
The differences to the original Global Core (below) are more pronounced. [email protected] has improved from 8.97% to 10.16%, while Maximum Daily Drawdown has declined from 9.08% to 6.90%. The overall improvement is vividly shown in the Up/Down Ratio which reflects the reward for each unit of risk. At 260%, the old Global Core gains $2.60 for each $1 of risk while at 334%, the upgraded Global Core gains $3.34 for each $1 of risk.
The website has been updated to include the upgraded Global Core Strategy. The Performance page includes performance tables for both the upgraded and original Global Core Strategies.
While updating the Performance page, I added tables for the combined Global Core + Global Satellite Strategies showing results for 50%, 75%, and 100% allocations to Global Satellite. This will help investors visualize the trade-offs between increased return and increased risk.
On a personal note, I intend to focus our investments on the Global Core Strategy during Hostile market conditions and a 50/50 mix of Global Core and Global Satellite Strategies during Favorable market conditions.
This will likely be the last blog post ahead of the Christmas Holiday. I want to wish all of my subscribers and followers the very best of the holiday season.
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