TAA Model for August, 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 underperformed its benchmark in July, returning (as of yesterday, 07/30) +0.8% versus 1.6%.
For July, the model will be replacing its large cash position with 10-year US Treasuries (IEF).
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 (as it has been over the last couple of years). 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).
. . . . .
Happy Trading,
ms
. . . . .
To stay up to date with what’s happening at the MarketSci Blog, we recommend subscribing to our RSS Feed or Email Feed.
Filed under: Tactical Asset Allocation | 2 Comments
Michael,
Having implemented since summer 2010 a similar approach (investing at the end of each month in the Top3 of a basket of 16 ETFs, using Relative Strength and Volatility for ranking), I follow each month the performance of your system.
Mine is definitely (by construction) much more volatile than yours: using like you 10k as of 30/9/2010, I reached 12.5k in April 2011 before declining. At 10.3k at end of July 2012.
But what interested me was to look at your average weight. Since Sept 2010, you have been invested at 36% in IEF, 10% in VNQ, 21% in GLD…
I checked the performance of a portfolio that would have kept this same weights at the end of each month and the result is stunning. This is quite solid. You would be at 11.9k now with less or similar volatility… Assuming you did not rebalance at the end of each month to keep the same weights, you would be close to 11.8k.
Just wanted to share with you those findings in a way to say thanks for this bloc and monthly topic.
Patrick