TAA Model for April, 2011
This is a new 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) excluding trading frictions and taxes.
Note that five asset classes have been chosen for April. The model is designed to hold up to four in any given month, but two competing asset classes are on the cusp, and with the cutoff time for placing trades quickly approaching, I’m hedging my bets and taking a partial position in each.
The model underperformed the benchmark in March as a result of a large ill-timed position in Japan equities. Losses were mostly offset by positions in gold and commodities, and we returned (as of yesterday’s close) -1.8% versus 0.1%.
Being raised by a Japanese grandmother and having a lot of friends and family in Japan makes it difficult to talk about the disaster in dollars and cents terms, but there you go.
The model has mostly recovered from the Japan drawdown (see graph below).
As I wrote last month, there hasn’t been a significant difference in performance between the model and the benchmark so far. I think the real strength of the model becomes apparent when equities and related asset classes lose steam. Until then, I’m happy that we’ve kept pace with the benchmark given how diversified our holdings are.
Happy Trading,
ms
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Filed under: Tactical Asset Allocation | 4 Comments
Hi Michael:
Quick question about IEF — it seems to fail your first test, “upward trending”. Of course, I don’t know which moving average you are using (or if you are using one at all…) but, using any variation of Faber’s approach, IEF is not in an uptrend.
Am I missing something?
Thanks.
Hmmm… I just found this: “UST is the only asset class the model trades that doesn’t respond well to trend-following/momentum (either in terms of it’s own performance or performance relative to other asset classes). I started using a unique non-momentum criteria for UST last month…”
If I had to guess you are trading IEF on mean reversion. Close?
Hello Glenn – good guess, but no. I’m looking at IEF performance relative to other more risk-oriented assets (aka intermarket relationship). michael
I’ll bet your broker wishes you traded in and out of the market more frequently.