We track 80+ Tactical Asset Allocation (TAA) strategies, most of which were designed from the perspective of a US investor trading US ETFs. Most European investors can’t access US ETFs, instead trading UCITS funds listed on non-US exchanges, often denominated in currencies other than USD. In this post we’ll provide data analyzing four approaches a […]
TAA Analysis
Inflation and Stock/Treasury Correlation
There has been a surge in correlation between US stocks and Treasuries over the last couple of years. To illustrate, below we’ve shown the rolling 3-year correlation between US stocks and 10-year Treasuries since 1900 (based on monthly returns). Note the spike at the far right of the chart. What is correlation? In this context, […]
Long-term Returns for US Treasury Funds Are Predictable
Long-term returns for US Treasury bond funds with a constant maturity (like IEF, TLT and SHY) have been quite predictable simply using initial Treasury yields as an estimate. This observation was popularized by John Bogle. Here’s an excellent recent look from Portfolio Optimizer. How predictable? Below we’ve shown the intial yield on 10-Year US Treasury […]
Tactical Asset Allocation Performance During the 2022 Bear Market
As a whole, Tactical Asset Allocation (TAA) did not manage losses during the 2022 bear market as well as it has during previous downturns. Individual strategies varied and some did well, but a primary function of TAA is loss management, and any failure to do so is worth analyzing further. In this post, we’re going […]
A Key New Momentum Measure to Consider: Distance from 1-Year High
This research was inspired by Alpha Architect’s coverage of a new paper looking at how the distance from a stock’s 1-year high has affected the performance of momentum strategies and the likelihood of “momentum crashes”. We look at the same question applied to a stock index: the S&P 500. We show that how far the […]
The Best Defensive Asset Class
In this post we look at what major asset classes have proven to be the best defensive choice in months when the market has fallen over the last 50+ years. We’ll look at multiple government and corporate bond assets, diversified commodities, gold and the US dollar. The results? As expected, a mixed bag. Investors who […]
Trending Fast and Slow
This is a test of a tactical strategy from the paper Trending Fast and Slow. It trades the S&P 500 by switching between fast and slow momentum based on market volatility. The strategy would have kept pace with the S&P 500, while significantly reducing the worst drawdowns. Backtested results from 1954 follow. Results are net […]
Tactical Asset Allocation During Bear Markets and Major Pullbacks
One of the primary benefits of Tactical Asset Allocation (TAA) is the ability to manage losses during major market declines. TAA does that by reducing allocation to risk asset classes like stocks and real estate, and increasing allocation to defensive assets like bonds and gold. In this post, we test how the 60+ TAA strategies […]
When the Close Is Not Really the Close (A Geeky Discussion)
This post covers an issue rarely discussed in backtesting: the day’s last real-time price shown at 4pm ET often differs slightly from the day’s official closing price determined shortly after 4pm. This is not an Allocate Smartly issue; it’s an oddity of the exchanges. Every so often this difference can cause discrepancies between backtests based […]
Diving Deeper: Does the Day of the Month Matter?
Most Tactical Asset Allocation (TAA) strategies trade just once a month. Backtests of those strategies usually assume trades are executed on the last trading day of the month. Why? Monthly asset data is often available further back into history than daily data. Assuming trades are executed at month-end allows for longer backtests, showing how the […]