TAA Model for July, 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.
The model underperformed the benchmark in June, returning (as of yesterday’s close) -1.6% vs -1.4%. Last month’s move out of commodities was fortunate as commodities took a hard fall, returning (as of this moment) -6.3% for the month.
For the upcoming month of July, I’m maintaining June’s allocation.
There hasn’t been a significant difference in performance between the model and the benchmark so far. As I’ve discussed before, I think the real strength of the model becomes apparent when equities and related asset classes go through a protracted downturn. Until then, I’m happy to keep pace with the benchmark given how diversified our holdings are.
Happy Trading,
ms
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Filed under: Tactical Asset Allocation | 4 Comments
How does the performance of this over the long haul compare to the Ivy Port? It is shown here:
http://advisorperspectives.com/dshort/charts/large.html?timing/Ivy-Portfolio-ETFReplay.gif
http://dshort.com/articles/2011/Ivy-Portfolio-in-ETFReplay.html
It is tempting to follow your strategy blindly, but if something relatively simple, such as the Ivy Port, would do almost as well, and also prevent me from staying long in a major bear like 2008, then maybe I’m better off with the strategy that I fully understand and which has nothing kept a secret from me. (However, I likely prefer a different moving average signal than the one the Ivy Port uses though.)
RE to J: I’m very familiar with Mebane Faber’s work, and if you read more about the TAA model in the link provided in the post, you’ll find that this model is very similar to Meb’s (his was the inspiration for this one). I use a different mechanism for selecting each month’s assets, but they’re conceptually the same. The biggest difference between the two is in how I decide how much to allocate to each asset in any given month (Meb’s published model was intentionally over-simplified to make it more easily digestible).
I have no skin in this game as far as which model (or any model for that matter) that you opt to follow, so you won’t find any attempt to persuade you that this model is better than any other. I’m just giving folks a peek into what I’m doing in my own portfolio. How they choose to use that information is entirely up to them. michael
Michael, I’m wondering how your trading results compare with your historical testing results. Specifically, how are you able to determine the weights assigned to your positions when you use the closing price data for the calculation? Doesn’t using the closing price necessitate that you enter the positions at the next day’s open, or are you using price data at say 10 minutes before the close to size your positions?
RE to Gerd: I’m using closing price data PRIOR to the close to run all calculations to be executed AT the close. Most months are pretty obvious as to which assets (and in what amounts) the model is going to choose so it’s a non-issue. Occassionally it’s close and in those cases I’ve split the difference and allocated half the usual amount to both assets (these are the months when I’ve chosen 5 rather than 4 assets). michael