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Tactical Asset Allocation in July

This is a summary of the recent performance of a wide range of excellent tactical asset allocation strategies. 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 July YTD
Vigilant Asset Allocation 5.82% 9.65%
Faber’s Global Tactical Asset Alloc. – Agg. 3 3.98% 7.05%
Classical Asset Allocation – Offensive 3.65% 17.51%
Flexible Asset Allocation 3.37% 7.52%
Classical Asset Allocation – Defensive 2.71% 11.30%
Traditional Dual Momentum 2.65% 11.85%
Elastic Asset Allocation – Offensive 2.61% 11.91%
Faber’s Global Tactical Asset Alloc. – Agg. 6 2.47% 10.08%
Adaptive Asset Allocation 2.30% 8.46%
Global Risk Parity Trend Following 2.27% 5.35%
Faber’s Sector Relative Strength 2.15% 5.48%
Robust Asset Allocation – Aggressive 2.14% 11.74%
Philosophical Economics’ Growth-Trend Timing 2.06% 11.42%
Faber’s Ivy Portfolio 2.05% 6.17%
Keuning’s Generalized Protective Momentum 1.96% 6.70%
Faber’s Global Tactical Asset Alloc. 13 1.72% 5.65%
Protective Asset Allocation 1.60% 8.11%
Elastic Asset Allocation – Defensive 1.57% 10.87%
US Max Sharpe 1.57% 8.15%
Varadi’s Minimum Correlation Portfolio 1.50% 10.62%
Protective Asset Allocation – CPR 1.48% 7.15%
60/40 Benchmark 1.38% 7.93%
Faber’s Global Tactical Asset Alloc. 5 1.28% 4.03%
Tactical Permanent Portfolio 1.26% 7.34%
Davis’ Three Way Model 1.24% 8.81%
Robust Asset Allocation – Balanced 1.19% 4.90%
US Min Correlation 1.11% 6.34%
Varadi’s Percentile Channels 1.08% 3.90%
Composite Dual Momentum 1.00% 10.10%
US Risk Parity Trend Following 1.00% 2.87%
Browne’s Permanent Portfolio 0.97% 6.87%
US Equal Risk Contribution 0.96% 5.55%
US Max Diversification 0.96% 5.76%
PortfolioCharts’ Golden Butterfly 0.95% 5.73%
Stoken’s Active Combined Asset 0.89% 6.89%
Stoken’s Active Combined Asset – Monthly 0.88% 6.87%
Dalio’s All-Weather Portfolio 0.87% 6.41%
Novell’s Tactical Bond Strategy 0.45% 2.27%
Glenn’s Paired Switching Strategy -0.86% 8.19%

Commentary:

Tactical asset allocation turned in a strong performance in July. It was hard to go horribly wrong, with most significant asset classes up for the month. Notable winners included emerging markets (EEM, +5.8%), commodities (DBC, +4.1%) and US large cap momentum (MTUM, +3.5%).

With such a large pool of published strategies to draw on (39 and counting), we’re able to draw some general conclusions about the state of TAA. The following two charts help to show trends in the asset classes that TAA is allocating to over time.

The first chart shows the average month-end allocation to categories of assets by the strategies that we track over the last two years (for a longer view, see this post). For example, “US Equities” may include everything from the S&P 500 to individual stock market sectors.

Important takeaways from this chart: TAA’s exposure to defensive assets like cash (light blue), US Treasuries (dark blue) and commodities (pink) remains low. Exposure to international equities (red) is particularly high at 23%, a level not seen since the end of 2012.

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). I realize that some asset classes don’t fit neatly into these buckets, but it makes for a useful high level view.

This chart shows overall allocation to risk assets near historical highs. The last time TAA’s exposure to risk assets stood at these levels was way back in 2007, about 6 months prior to the onset of the Global Financial Crisis (click for a longer view). That’s a good thing if this broad rally continues, but it means that there is significant exposure to investors here if the market stumbles in August.

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