This is a summary of the recent performance of a wide range of excellent tactical asset allocation strategies, net of transaction costs. These strategies are sourced from books, academic papers, and other publications. While we don’t (yet) include every published TAA model, these strategies are broadly representative of the TAA space. Learn more about what we do or let AllocateSmartly help you follow these strategies in near real-time.
July was all about risk asset classes, with many significant risk assets turning in big returns for the month. Notable leaders included US equities (SPY +3.7%) and emerging market equities (EEM +3.5%). Nearly all defensive asset classes performed poorly for the month, including commodities (DBC -2.4%), gold (GLD -2.2%) and US Treasuries (IEF -0.5%, TLT -1.4%).
As we show in the data dump below, most TAA strategies entered the month positioned defensively due to recent market weakness. As a result of this reduced exposure to offensive assets (and particularly equities), on average tactical asset allocation underperformed the US 60/40 benchmark in July. TAA has responded by beginning to rotate back into offensive assets, especially US equities.
With such a large pool of published strategies to draw on (43 and counting), we’re able to draw some broad conclusions about the state of TAA. The following two charts help to show trends in the asset classes that TAA as a whole is allocating to over time.
The first chart shows the average month-end allocation to categories of assets by all of the strategies that we track. For example, “US Equities” may include everything from the S&P 500 to individual stock market sectors. Defensive assets tend to be at the bottom of the chart, and offensive at the top. The data on the far right of the chart reflects where TAA stood as of the end of the most recent month.
Note the rotation out of cash and US Treasuries, and into primarily US equities. US equity exposure is at it’s highest level since April of last year, and near all-time highs (click for a longer view). Despite the strong showing from international equities in July, exposure to international equities remains near non-existent.
In the second chart below, we’ve combined average TAA allocation into even broader categories: “risk on” (equities, real estate and high yield bonds) versus “risk off” (everything else). We realize that some asset classes don’t fit neatly into these buckets, but it makes for a useful high level view.
This chart shows that for the first time this year, TAA has begun shifting back to offensive assets. That’s a good thing if this bull market picks back up, but it means that there remains significant short-term risk to investors here if the market falters in August.
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