TAA Model for January, 2012

30Dec11

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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9 Responses to “TAA Model for January, 2012”

  1. 1 steve

    I think it’s a fair question to ask if quantitative trading is either dead or seriously wounded. virtually all TAA models performed poorly this year after much hype. what say you?

    • 2 MarketSci

      Hello Steve – good question, fair assessment, but I would say no. These are very long-term strategies and through history have gone through long periods of underperforming (or at the very least not outperforming). The last half of the 1990′s is a great example. One year is way too short a time to judge the efficacy of that type of model. Just my $0.02. ms

  2. 3 steve

    yup, I agree but wanted to hear from the horses mouth. moreover, I trade a bond monthly momentum model that continues to perform.

  3. Keep it up. I look forward to seeing what this TAA fund does each month!

  4. What could be the cause of such a poor performance of the Timing Model. Does a Timing model fails when it is open to public?

    • 6 MarketSci

      Rajandran – as I tried to make clear, despite backtesting looking very good from afar, the model (like all models) would have gone through long periods of underperformance. Read:

      http://marketsci.wordpress.com/2010/10/25/long-backtests-and-madoff%E2%80%99esque-returns/

      Judging such a long-term approach by one month or even one year is silly.

      The key to being successful in this business is to keep a level head.

      The TAA model has underperformed lately, but I understand that that underperformance is well within what it would have experience historically, so I relax.

      By the same token, my volatility model is killing it. We’re up over 20% this month alone. And you haven’t heard a peep about it from me for the same reason. That outperformance is well within what it would have experienced historically, so I relax.

      michael

  5. 7 Steve

    Michael, it looks like a good result MTD so far. Something strikes me as curious though- the fact that you have gold in the portfolio for Jan. after taking a real caning in Dec. I would have suspected it wouldn’t have had the relative strength needed for inclusion. Is there any counter-trend aspect at play here, expecting that an asset that is overdone the previous month will be more likely to reverse the next?

    • 8 MarketSci

      Hello Steve – no, no countertrend. Just a strong enough long-term uptrend to justify hanging on. The only asset I’m not using something other than trend/momentum with is Treasuries. michael

  6. 9 finsovet

    Hi Michael,
    Could you remind – are you going to continue publishing the seasonality maps? BTW, here is a chart which might give some ideas around seasonality:

    http://advisorperspectives.com/dshort/guest/Chris-Kimble-120321-Seasonal-Change.php


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