TAA Model for January, 2012
This is a monthly feature at the MarketSci Blog.
Our Tactical Asset Allocation (TAA) model selects up to four assets from a diversified basket of asset classes on the final trading day of each month. Below is the new allocation for today’s close. Click to read more about the TAA model.
I eat my own cooking, so I’ve devoted a healthy share of my own net worth to the TAA model (read why). On the last day of each month I share my new allocation (see above) and real-time performance (see below).
The model underperformed its benchmark in December, returning (as of yesterday’s close) -1.9% vs 1.3%.
The portfolio was dragged down by the abysmal performance of gold in December. Gold and Treasuries are both up nicely today so returns for the full month should end near flat.
For January, the model will add a small position in real estate (ETF VNQ). Normally I would say this is a conservative allocation, but given gold’s recent shenanigans, I think this is a moderate allocation.
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Happy Trading,
ms
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Filed under: Tactical Asset Allocation | 6 Comments
Monthly Seasonality Map
I’ve had quite a few readers ask about the monthly seasonality map.
I want to retool the Map, but I’ve been busy the last month or so on other projects.
The large vs small cap map has been performing exceptionally well, but that’s not the one most folks are using.
Most readers are interested in the main long/short map, and while it has outperformed simple buy and hold, I think it has room for improvement.
So look for more on that shortly. In the meantime, no monthly seasonality map will be issued this month.
Happy Trading,
ms
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Filed under: Monthly Seasonality Map | 1 Comment
January Bullishness on the Wane?
The end of December is nigh. Here’s a quick look at how the U.S. market has performed historically in January.
First the (misleading) numbers…
From this 30,000 foot view, January has solidly outperformed the average month, with almost twice the average and median return (at less volatility).
But averages can be misleading because they say nothing about how consistent an observation has been or whether it’s waxing or waning, so below I’ve assumed a trader was only long the S&P 500 in January (red) versus the average month (grey) each year since 1930.
[logarithmically-scaled, growth of $10,000]
The graph shows that January consistently outperformed the average month over the last 80+ years. But the graph also shows that that outperformance has waned more recently. Note the dip in the equity curve over the last decade or so.
The next graph makes this more clear. Below is the rolling 10-year average excess monthly return in January versus the average month. Positive values indicate January outperformed over that decade, and negative values indicate that it underperformed.
January has not impressed over the last decade.
Like all seasonality plays, this one has by no means been a sure thing and doesn’t by itself justify a trade, but because January bullishness has been on the wane, I’m calling the calendar month bias for January NEUTRAL.
Happy Trading,
ms
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Filed under: Time-based | 4 Comments
TAA Model for December, 2011
This is a monthly feature at the MarketSci Blog.
Our Tactical Asset Allocation (TAA) model selects up to four assets from a diversified basket of asset classes on the final trading day of each month. Below is the new allocation for today’s close. Click to read more about the TAA model.
I eat my own cooking, so I’ve devoted a healthy share of my own net worth to the TAA model (read why). On the last day of each month I share my new allocation (see above) and real-time performance (see below).
The model outperformed its benchmark in November, returning (as of yesterday’s close) -1.4% vs -1.6%.
The model was positioned mostly in cash in November, so despite holding the worst performer of all the asset classes I track (real estate) it still managed to eke out a small win over the benchmark. With both gold and real estate rallying today, the model should end the month near flat.
For December the model is dropping that small real estate position in favor of a large (low vol) position in Treasuries. This is an even more defensive allocation than November.
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Happy Trading,
ms
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Filed under: Tactical Asset Allocation | Leave a Comment
One bit of follow up (inspired by Ed Mamula) to my previous post December Super Duper Bullish.
That post showed that December has historically been bullish for the stock market. Ed asked whether this bullish seasonality was affected by the market’s performance in the preceding 11 months, Jan – Nov (which would make sense given “tax loss selling” and all that jazz).
In short, yes it is. To illustrate…
The table above shows December results when Jan-Nov was either up (left column) or down (right).
From this 30,000 foot view, December returns in years when Jan-Nov was up have been hugely bullish, and when Jan-Nov was down, flat.
How consistent has this observation been?
In the graph below I’ve assumed an investor was long the S&P 500 in December when Jan-Nov had been up (green) or down (red) since 1930.
I’d call that pretty darn consistent.
We’re dealing with a very small number of observations here (so be extra wary that this is all just noise) but the stark contrast between the two is hard to argue with.
By my calculation we stand at about a -3.5% loss YTD, so we’re right on the cusp of the cutoff point. In any case, the important takeaway is that the much touted bullish December seasonality might not be so strong this year.
Note: I’m sure that none of this is new and other folks have blogged about this observation before. But it’s all new to me, so meh. P.S. Thanks Ed!
Happy Trading,
ms
Geek note: returns are dividend-adjusted. Dividends interpolated from quarterly data before 1988. S&P 500 TR index used 1988 and beyond.
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Filed under: Time-based | 6 Comments
