Recent asset allocation articles (tactical or otherwise) that you might have missed:
40 Shades of Tactical Asset Allocation Across Bull And Bear Markets (Earl Adamy)
Earl walks readers though his own approach to finding the best TAA strategies using the data available in our members area.
We try not to define the “best” strategies for members, as the best is highly dependent on each individual’s unique investment needs. Instead, we provide the data that investors require to make those decisions for themselves. It’s always interesting to see the logic that smart members are using to perform that next level of analysis.
Timing Bonds with Value, Momentum, and Carry (Newfound Research)
Good bond trading strategies are in high demand and short supply. In high demand because of our inevitable future of rising interest rates (read more and more), and in short supply because of how hard it has been to improve on buy and hold during the previous 35+ years of falling interest rates.
A number of members have written in asking if we’ll be including this excellent strategy from Newfound on our site. In its current form no, as there are some sticking points that are outside of the framework of the strategies that we track (ex. long-only, sans leverage), but Newfound is cooking up a “lite” version that we hope will achieve similar results and be a better match for what we do. More to follow.
The Behavioral and Performance Benefits of Trend Following (EconomPic)
Most of the strategies that we track are, at their core, trend-following and/or momentum strategies. In this piece, Jake looks at how often a simple trend-following model outperforms buy & hold. The results are unsurprising: TF consistently outperforms BH, and when it doesn’t, underperformance is short-lived and clustered. Our favorite quote (originally from Alpha Architect):
Flip it and make trend following the benchmark and consider buy and hold. Works sometimes, doesn’t work other times, but you eat massive tail risk with buy and hold, therefore isn’t worth the risk/effort.
Quantifying Timing Luck (Newfound Research)
Many TAA strategies only trade once per month (or week, quarter, etc.) “Timing luck” describes the randomness that is introduced simply by the particular day that an investor chooses to trade a strategy. That decision should be arbitrary, but in reality can often have huge consequences.
Newfound was the inspiration for our own deep dive into timing luck and its mortal enemy: portfolio tranching (available in our members area). In this piece, Newfound lays out a mathematical approach to identifying how susceptible a strategy is to timing luck.