Our site serves a lot of purposes for tactical asset allocation (TAA) investors: curating the best published strategies, testing those strategies with superior historical data, providing the ability to combine strategies into custom portfolios, and tracking even the most complex strategies in near real-time. But maybe the most important function we serve is simply independent verification of backtested strategy results.
We test a lot of TAA strategies, most of which never make it onto this site, so we’re in a unique position to conclude that published TAA backtests are almost universally overly optimistic.
Nearly every strategy that we’ve tested to date has performed worse in our tests than the original publication. Sometimes it’s a minor difference in performance because of some relatively benign factor like transaction costs. Sometimes it’s a miss a mile wide.
It’s a matter of motivation. While we are motivated to see TAA as a whole do well (because it’s what we do and how we invest), we don’t have an interest in any particular strategy doing well. We’re an unbiased arbiter of strategy performance.
From this site’s inception, we decided not to go the usual route of publishing our own models. There are more than enough smart sites, books, papers and pundits on that side of the ledger. We instead devoted our time to developing our test engine and analytics. Some simple things that make our results better:
- Curating the best historical asset data available. Published backtests are rife with unrealistic historical data. Read more about the perils of backtesting with unrealistic data.
- Applying reasonable assumptions about transaction costs, ETP expenses, etc.
- As silly as it sounds, simply calculating statistics correctly (no, your Sharpe Ratio is not a Sharpe Ratio if you’re not discounting it for a risk-free rate).
- Conforming all models to a common set of basic assumptions. We don’t allow for assets that can’t be traded easily in the real-world, and we don’t allow for niche assets that the strategy has been specifically “tuned” to fit. If a strategy is designed to trade some US stock market fund with $100 million under management that no one has ever heard of, but falls on its face when applied to SPY, it’s almost certainly destined to disappoint in the real world.
- And perhaps most importantly, doing our best to just do good work. We have more than a handful of stories of authors, when confronted with our disappointing results, essentially copping to their published results being junk. For the record, none of those authors appear on this site (nor will they ever).
In short, despite all of the nifty features that we’ve worked to provide for members, perhaps the most important is simply being an independent resource to help members separate the wheat from the chaff.
We invite you to become a member for about a $1 a day, or take our platform for a test drive with a free limited membership. Put the industry’s best tactical asset allocation strategies to the test, combine them into your own custom portfolio, and then track them in near real-time. Have questions? Learn more about what we do, check out our FAQs or contact us.