TAA Model for July, 2012
This is a monthly feature at the MarketSci Blog.
Our Tactical Asset Allocation (TAA) model selects up to four assets from a diverse 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 June, returning (as of yesterday, 06/28) +0.9% versus 0.8%.
For July, the model will be dropping US Treasuries (IEF) in favor of cash.
Since inception, the model has stacked up well against similar active strategies like Cambria’s ETF GTAA and the Permanent Portfolio (PRPFX), but has lagged what I think is the most important benchmark, a passive investment in equities and Treasuries rebalanced monthly (see stats below).
As I’ve discussed before, the model would historically have gone through extended periods of underperforming its benchmark, especially when the benchmark has been strong. This is a “generational” model and I’m much more concerned with returns over the next decades than any one month or year (read more).
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Happy Trading,
ms
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Filed under: Tactical Asset Allocation | 5 Comments
Michael-
I was curious about the large cash position. If I remember correctly,
you are targeting S&P.volatility with your portfolio. Is this still the case as the cash position doesn’t seem to mesh with recent volatility? If so, what time period are you looking at to match the S&P’s historical volatility?
Hello Steve – good question – because only half the portfolio (2 positions) met the criteria for a buy this month, I’m targeting half the S&P 500′s volatility (otherwise, the model could go “all in” on a month when only say 1 asset is selected).
And real estate (VNQ) is a lot more volatile than the S&P 500, hence the reason why the total equity position doesn’t equal 50% of the portfolio.
Hope that answered your question.
michael
Michael,
I’m curious as to what your system finds so unappealing about IEF to signal a switch from the previous 59% allocation to a full cash position? It seems to me from a strictly technical perspective, IEF is trending upward in a pretty consistent fashion. Is there something technically broken there that i’m not seeing?
I’m short TLT via a September bear call spread, so if it’s just that you see a short term top in treasuries i’m with you on that one. However I thought your system was designed to take all macro and personal intuition out of the allocation process.
Hello Vix-Trader – Treasuries is the one asset class that the model trades that doesn’t follow the model’s uptrend + momentum criteria.
Historically, long-term MA crossover type approaches haven’t worked well with UST (unlike equities, REITs, gold, commodities, etc), so for that single asset class I use a much more short-term momentum-based criteria.
michael