TAA Model for December, 2012

30Nov12

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.

20121130.01

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 November, returning (as of yesterday, 11/29) 0.6% versus 0.8%.

20121130.02

For December, the model will be selling the FTSE/Xinhua China 25 stock index (FXI) and replacing it with real estate (VNQ). The position is relatively small to compensate for the high volatility of the position.

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).

A relevant post from The Reformed Broker (h/t Abnormal Returns):
http://www.thereformedbroker.com/2012/11/30/a-graveyard-for-tacticians/

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).

. . . . .

20121130.03

20121130.04

Happy Trading,
ms

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