We continue to expand our platform based on invaluable feedback from members. Here’s a quick look at features we’ve added over the last month, and what’s coming up in the near future.
New Feature #1: Longer Model Portfolio Backtests
New here? Our platform allows members to combine multiple TAA strategies together into what we call “model portfolios”. They’re just like any other portfolio, but rather than combining assets, members combine strategies. This diversified approach reduces the risk of any single strategy underperforming.
Previously, model portfolio (MP) tests began in 1990 at the earliest, despite the fact that our individual strategy backtests go back as far as 1970.
Why? If we started the MP test as early as possible, the start date would jump around as members added/removed strategies. Let’s say a member’s MP included a single strategy that began in 1970. If they added a second strategy that began in 1973, it would change the MP start date to 1973. Add a third strategy that began in 1975 and the MP start date would again change to 1975.
We thought that constant jumping around would be confusing for users. It became clear however that you disagreed with us and wanted as much historical data as was available, so we’ve recalibrated. We now start MP tests as early as the data allows. That means that, depending on the strategies selected, you can expect your MPs to now show much longer backtests.
One fly in the ointment: Alternate Trading Days
Most TAA strategies trade just once per month, usually at month-end. Our platform allows for these strategies to instead trade on any other day of the month (with a unique signal based on the latest data), or to split trades across multiple days. This diversifies the risk of going all in on a single day.
If your MP uses one of these alternate (i.e. not month-end) trading days, this upgrade may not have much of an effect on your MP backtest. That’s because alternate trading day analysis requires daily as opposed to monthly data (read more). Daily asset data tends not to go as far back into the past, meaning that these tests tend to be shorter, and as a result, so do the MP backtests.
To determine when a monthly strategy trading at month-end (day 21) begins, you can refer to the date on the “primary” backtest. Using the PAA strategy as an example: the primary backtest is here and begins in 1973. If you were to instead trade on any other day, refer to the “alt trading day” backtest. For the PAA strategy, that alt trading day backtest is here and begins in 1989.
Pro tip: If you really want to get deep in the weeds on how we determine when to start MP tests, make sure you read this FAQ (see “Backtest Start Date”).
New Feature #2: Aggregate Asset Allocation Daily/Weekly Email
New here? Our Aggregate Asset Allocation report shows the average asset allocation across all of the 50+ tactical strategies that we track. It’s not meant to be followed in real-time (that’s what your model portfolios are for). It’s simply intended to provide insight into how TAA as a whole is reacting to the market.
After making the upfront time investment in designing their model portfolios, many members only view their portfolios on days when a trade is signaled. That’s the nature of tried-and-true tactical asset allocation. The hard work is done up front, and it can be counterproductive to constantly tinker.
But we found members often were still logging in every day to view the Aggregate Asset Allocation report. The report provides daily color that can be useful for keeping a pulse on the market.
We’ve tailored the platform to those users by adding an email option to the report. You can now receive the entire Aggregate Asset Allocation report via email, either daily or weekly, by changing your email settings.
Pro tip: How would the Agg Alloc report have performed as a tool for actually timing the market? Read our deep dive, which includes a 1-day lag in execution to account for how late the report is generated.
What’s Next #1: Meta Strategy Alt. Trading Days
New here? Meta Strategy is our own smart approach to combining the strategies on our site in one ready-made package. Each month, Meta selects 10 strategies and shows their combined allocation at month-end. Like your “model portfolios”, this helps diversify the risk of any single strategy underperforming.
Currently, Meta Strategy can only be traded at end-of-month (i.e. not alt. trading days). Integrating Meta into the site was complex, so we did it in baby steps and only allowed for month-end trading. We’re ready to fix that. Members will soon be able to trade Meta on any day of the month, just like any other monthly strategy.
See the chart below for an early view of results from 1990. The grey lines represent all alternate trading days, the blue line the average trading day, and the orange line trading at month-end.
Logarithmically-scaled. Click for linearly-scaled results.
Relative to other monthly strategies exhibiting similar volatility, Meta has performed in a fairly tight range on alt. trading days, but trading on the last day of the month has been the top performing among them.
On one hand, we were a little surprised by that. We consider performance across all possible trading days when selecting the 10 strategies on the theory that average trading day performance is less prone to overfitting (read more). We expected end-of-month trading to come out a little closer to the middle of the pack.
On the other hand, it’s not surprising. TAA as a whole has tended to outperform at/near the turn of the month (read our article at Alpha Architect on the subject). Because Meta is designed to provide diversified exposure to TAA as a style, it makes sense that Meta would also outperform at/near month-end.
What’s Next #2: Adding Passive Assets to Model Portfolio Backtests
This is a good example of a feature we never foresaw when designing the platform but makes perfect sense in hindsight.
Currently, members can choose from 50+ TAA strategies to add to their model portfolios. That’s great for designing an investor’s pure tactical exposure, but we’re big proponents of blending tactical with passive buy & hold. Such a blended approach is psychologically easier to trade when either style finds itself out of favor (read more). Right now, it can be confusing to understand how your finely tuned tactical portfolio meshes with your passive portfolio.
This new feature will allow you to essentially roll your own buy & hold portfolio within your model portfolio. For example, you could allocate half of your portfolio to tactical strategies and half to your own custom mix of passive assets. We would backtest the combined result and show the combined asset allocation being signaled in near real-time.
Pro tip: Allocate Smartly specializes in designing tactical portfolios. For designing our passive buy & hold portfolios, we use our sister site BetterBuyAndHold.com. AS members receive a 50% discount.
Many thanks for the feedback:
This has been a quick look at what we’ve been working on and what’s coming up in the near future. We prioritize new features based on your feedback, so we’d like to say many thanks for all of the valuable suggestions. Keep em’ coming.
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 follow them in near real-time. Not a DIY investor? There’s also a managed solution. Learn more about what we do.