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Tactical Asset Allocation in June

This is a summary of the recent performance of a wide range of excellent Tactical Asset Allocation (TAA) 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.

Recent Performance of Asset Allocation Strategies
Use the Arrows to Sort This Table
Strategy Jun YTD
Philosophical Economics’ Growth-Trend Timing 6.96% 14.59%
Traditional Dual Momentum 6.96% 6.74%
Davis’ Three Way Model 5.30% 7.65%
60/40 Benchmark 4.66% 13.77%
Varadi’s Minimum Correlation Portfolio 4.58% 10.66%
PortfolioCharts’ Golden Butterfly 4.50% 10.82%
Stoken’s Active Combined Asset 4.49% 12.60%
Tactical Permanent Portfolio 4.11% 6.61%
Browne’s Permanent Portfolio 4.03% 9.96%
Faber’s Ivy Portfolio 3.91% 13.39%
Dalio’s All-Weather Portfolio 3.55% 12.07%
Newfound’s Diversified Dual Momentum 3.49% 3.03%
Faber’s Trinity Portfolio Lite 3.49% 8.64%
US Min Correlation 3.29% 12.37%
Composite Dual Momentum 3.13% 7.57%
Stoken’s Active Combined Asset – Monthly 3.08% 10.66%
Livingston’s Mama Bear Portfolio 3.08% 6.43%
Faber’s Global Tactical Asset Alloc. – Agg. 6 3.00% 5.17%
US Equal Risk Contribution 2.98% 11.71%
US Max Diversification 2.97% 10.34%
US Max Sharpe 2.90% 10.39%
Varadi’s Percentile Channels 2.81% 5.24%
Novell’s Tactical Bond Strategy 2.57% 6.79%
Allocate Smartly’s Meta Strategy 2.51% 5.49%
Efficiente Index 2.27% 2.69%
Faber’s Global Tactical Asset Alloc. 13 2.20% 3.71%
Livingston’s Papa Bear Portfolio 1.78% 0.63%
Faber’s Global Tactical Asset Alloc. – Agg. 3 1.71% 0.50%
Protective Asset Allocation – CPR 1.57% 4.25%
Protective Asset Allocation 1.57% 4.25%
Robust Asset Allocation – Aggressive 1.49% 1.31%
Global Risk Parity Trend Following 1.39% 2.22%
Defensive Asset Allocation 1.36% 1.29%
Robust Asset Allocation – Balanced 1.23% 2.98%
Adaptive Asset Allocation 1.21% 2.67%
Elastic Asset Allocation – Defensive 1.19% 3.01%
Elastic Asset Allocation – Offensive 1.17% 0.82%
Classical Asset Allocation – Defensive 1.16% 4.68%
Classical Asset Allocation – Offensive 1.09% 1.88%
Kipnis’ Defensive Adaptive Asset Allocation 1.09% -3.76%
Keuning’s Generalized Protective Momentum 1.01% 6.06%
Vigilant Asset Allocation – Balanced 1.01% 1.18%
Vigilant Asset Allocation – Aggressive 1.01% -0.38%
Glenn’s Paired Switching Strategy 0.95% 2.41%
Flexible Asset Allocation 0.94% -0.38%
US Risk Parity Trend Following 0.85% 3.49%
Accelerating Dual Momentum 0.75% 3.17%
Faber’s Global Tactical Asset Alloc. 5 0.62% 2.45%
Faber’s Sector Relative Strength 0.07% -0.10%

Commentary:

Tactical Asset Allocation turned in what would normally be considered solid numbers for the month, but still underperformed its benchmark…badly. TAA entered June positioned defensively in response to market weakness in May. That proved to be overly-cautious, as equities recovered sharply (ex. SPY +7.0%, EFA +5.9%, EEM +6.2%).

As we show in the data dump below, TAA (in aggregate) is back to a more balanced asset allocation with roughly equal exposure to risk and defensive assets.

This is the second time this year that TAA has been “head faked” by short-term market weakness like this, and it shows in the YTD numbers. To some degree, this is the price of doing business for trend-following/momentum types of strategies. At some point, TAA’s cautious nature is going to save the portfolio from significant loss (ex. 2000-02 and 2007-08), but in the meantime, that risk adversity makes TAA prone to getting stuck on the sidelines when those losses don’t develop.

Data Dump:

With such a large pool of published strategies to draw on (49 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.

The biggest shift in allocation was out of US Treasuries (-22%) and into US Equities (+20%).


(click for a longer view)

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.

Note the significant increase in exposure to defensive assets, and subsequent reversal to a more moderate allocation (click for a longer view).


(click for a longer view)

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