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.
Tactical asset allocation turned in strong returns in November, but as a whole, underperformed the 60/40 benchmark. Big returns for US equities (ex. SPY +3.06%, IWM +2.94%) made the 60/40 a difficult hurdle to beat for diversified portfolios.
Of the significant asset classes, emerging market equities turned in the worst performance (EEM -0.39%). That was particularly painful for TAA, as a number of models were overweight emerging markets due to their recent strength.
With such a large pool of published strategies to draw on (40 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. Members note that you can see this information updated daily with our Aggregate Asset Allocation report.
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. Two important takeaways from this chart: TAA’s exposure to defensive assets like cash (light blue) and US Treasuries (dark blue) is now at it’s lowest point since late 2004, and exposure to international equities (red) is near it’s highest point since late 2012 (click for a longer view). TAA is positioned aggressively, which will become even clearer in the follow up charts.
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 that overall allocation to risk assets remains elevated. 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 remains significant exposure to investors here if the market stumbles in December.
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