Quant Mashup - Allocate Smartly
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Excess Earnings Yield Dynamic Valuation Strategy [Allocate Smartly]
This is a test of the “Excess Earnings Yield Dynamic” valuation strategy based on the paper Man Doth Not Invest by Earnings Yield Alone by White and Haghani of Elm Wealth. The strategy dynamically splits the portfolio between stocks and TIPS based on “excess earnings yield”, which is the
- 4 months ago, 29 Jul 2024, 08:06am -
Pragmatic Asset Allocation from Vojtko and Javorska of Quantpedia [Allocate Smartly]
This is a test of Pragmatic Asset Allocation from Vojtko and Javorská of Quantpedia. While the strategy is “tactical” (i.e. changes allocation over time in response to market conditions), it’s also designed to ensure tax efficiency. We track many tactical strategies that have been tax
- 4 months ago, 16 Jul 2024, 06:31pm -
Is Month-End Still the Best Time to Trade Tactical Strategies? [Allocate Smartly]
Most Tactical Asset Allocation (TAA) strategies trade just once per month. Strategy developers almost always assume trades are executed on the last trading day of the month. A unique feature of our platform is the ability to follow these strategies on any other day of the month as well. We’re not
- 6 months ago, 31 May 2024, 08:10pm -
Tactical Asset Allocation and Taxes: FIFO vs LIFO Deep Dive [Allocate Smartly]
This is a deep dive into which share disposal method – FIFO or LIFO – would have been more tax advantageous for the 80+ asset allocation strategies we track. When selling shares FIFO (first in, first out), the oldest shares held are sold first. When selling LIFO (last in, first out), the most
- 6 months ago, 17 May 2024, 06:22pm -
Maximum Ulcer Performance Index (UPI) Portfolios [Allocate Smartly]
We’ve added a new objective to the Portfolio Optimizer. Members can now find the combination of TAA strategies that would have maximized the Ulcer Performance Index (UPI), aka the “Martin Ratio”. Members: begin exploring the Max UPI portfolios now. UPI is a measure of return relative to
- 6 months ago, 13 May 2024, 07:43pm -
Make Things Easy on Yourself: “Roll up” Small Asset Positions [Allocate Smartly]
Here are some things we know about Tactical Asset Allocation: (Learn more: What is TAA?) We shouldn’t go 100% “all in” on just one TAA strategy. That introduces “specification risk”, or the risk that we’ve bet on an underperforming horse. Instead, we should combine multiple strategies
- 7 months ago, 3 May 2024, 11:31pm -
Meb Faber's 12-Month High Switch [Allocate Smartly]
This is a test of the 12-Month High Switch Model, a Tactical Asset Allocation (TAA) strategy from Meb Faber. Meb has done more than anyone to popularize TAA as a trading style, including many of the fundamental concepts used today. This is another of his simple but effective ideas. Backtested
- 8 months ago, 19 Mar 2024, 09:55pm -
European Investors and TAA Strategies: Four Approaches [Allocate Smartly]
We track 80+ Tactical Asset Allocation (TAA) strategies, most of which were designed from the perspective of a US investor trading US ETFs. Most European investors can’t access US ETFs, instead trading UCITS funds listed on non-US exchanges, often denominated in currencies other than USD. In this
- 9 months ago, 12 Feb 2024, 08:14pm -
Dr. Keller & Keuning’s Simple Variation of “Hybrid Asset Allocation” [Allocate Smartly]
This is a test of the “simple” variation of Dr. Keller and Keuning’s strategy from their paper Dual and Canary Momentum with Rising Yields/Inflation: Hybrid Asset Allocation (HAA). We’ve covered the “balanced” version of HAA previously. It has become one of the more popular strategies on
- 10 months ago, 19 Jan 2024, 04:29pm -
Choi's Dividend & Growth Allocation [Allocate Smartly]
This is a test of Paul Choi’s paper Balance Between Growth and Dividend: Dividend & Growth Allocation (DGA). This strategy would have delivered exceptional performance over the last 50 years, but we would temper future expectations for several reasons we discuss below. Backtested results from
- 11 months ago, 9 Jan 2024, 07:26am -
Inflation and Stock/Treasury Correlation [Allocate Smartly]
There has been a surge in correlation between US stocks and Treasuries over the last couple of years. To illustrate, below we’ve shown the rolling 3-year correlation between US stocks and 10-year Treasuries since 1900 (based on monthly returns). Note the spike at the far right of the chart. What
- 1 year ago, 3 Nov 2023, 08:00am -
Long-term Returns for US Treasury Funds Are Predictable: What Do We Do with That Information? [Allocate Smartly]
Long-term returns for US Treasury bond funds with a constant maturity (like IEF, TLT and SHY) have been quite predictable simply using initial Treasury yields as an estimate. This observation was popularized by John Bogle. Here’s an excellent recent look from Portfolio Optimizer. How predictable?
- 1 year ago, 6 Oct 2023, 01:10am -
Super-Secret Proprietary Black Box Strategies [Allocate Smartly]
Note: This is a rare non-geeky, non-quantitative, stream of thought blog post. Because we’re so deep into this world of Tactical Asset Allocation (TAA), we’re sometimes asked for our thoughts on such-and-such black box TAA strategy. By “black box” we mean a strategy for which the trading
- 1 year ago, 27 Sep 2023, 11:34pm -
Tactical Asset Allocation Performance During the 2022 Bear Market [Allocate Smartly]
As a whole, Tactical Asset Allocation (TAA) did not manage losses during the 2022 bear market as well as it has during previous downturns. Individual strategies varied and some did well, but a primary function of TAA is loss management, and any failure to do so is worth analyzing further. In this
- 1 year ago, 22 Sep 2023, 07:52am -
Testing “TrendYCMacro” from Durian and Vojtko of @Quantpedia [Allocate Smartly]
This is a test of the “TrendYCMacro” strategy from the paper Avoid Equity Bear Markets with a Market Timing Strategy from Ďurian and Vojtko of Quantpedia. The strategy combines trends in price, the slope of the yield curve and key economic indicators to switch between US equities and cash.
- 1 year ago, 5 Sep 2023, 05:27pm -
Revisiting “Link’s Global Growth Cycle” Strategy [Allocate Smartly]
We’ve previously covered Link’s Global Growth Cycle strategy, which uses OECD Composite Leading Indicator (CLI) data to time the market. The strategy has navigated the market gyrations over the last few years well, so naturally it’s gotten the attention of members. Recent strategy results
- 1 year ago, 21 Aug 2023, 05:48pm -
New Feature: 10-Year Stock Market Return Forecast [Allocate Smartly]
We are often asked about stock market valuation models such as Shiller’s CAPE Ratio and the Buffet Indicator. These models predict long-term returns, usually forecasting the next 10 years. Our recent analysis of one such valuation model, the Aggregate Investor Allocation to Equities, motivated us
- 1 year ago, 14 Aug 2023, 09:55pm -
Our Take on "The Single Greatest Predictor of Future Stock Market Returns" [Allocate Smartly]
Readers have asked for our take on “the single greatest predictor of future stock market returns”, aka the Aggregate Investor Allocation to Equities. This indicator was first shared by Philosophical Economics back in 2013, and recently resurrected by Portfolio Optimizer (two excellent sites you
- 1 year ago, 30 May 2023, 09:00am -
A Key New Momentum Measure to Consider: Distance from 1-Year High [Allocate Smartly]
This research was inspired by Alpha Architect’s coverage of a new paper looking at how the distance from a stock’s 1-year high has affected the performance of momentum strategies and the likelihood of “momentum crashes”. We look at the same question applied to a stock index: the S&P 500.
- 1 year ago, 22 May 2023, 09:00am -
Mark Virag's “Momentum Based Balancing”: Relative Momentum Taken to the Extreme [Allocate Smartly]
This a test of Mark Virag’s paper “Momentum Based Balancing for the Diversified Portfolio” (NAAIM Wagner Award winner, 2014). This is a relative momentum strategy that provides an interesting contrast to a popular strategy we track: FinancialMentor.com’s Optimum 3. More on this later.
- 1 year ago, 22 May 2023, 08:59am -
Vintage Economic Data [Allocate Smartly]
Some of the strategies we track use economic data, like the unemployment rate, when making investment decisions. Like 99.99% of strategy backtests you’ll encounter, we’ve always taken the shortcut of basing our historical results on that economic data as it looks today. The problem is that
- 1 year ago, 29 Apr 2023, 12:21am -
Hybrid Asset Allocation [Allocate Smartly]
This is a test of the latest tactical asset allocation strategy from Dr. Wouter Keller and JW Keuning and their paper: Dual and Canary Momentum with Rising Yields/Inflation: Hybrid Asset Allocation (HAA). Backtested results from 1971 follow. Results are net of transaction costs – see backtest
- 1 year ago, 3 Mar 2023, 05:58am -
Zakamulin's Optimal Trend Following [Allocate Smartly]
This is a test of a novel trend-following strategy from the paper Optimal Trend Following Rules in Two-State Regime-Switching Models by Valeriy Zakamulin and Javier Giner. These results aren’t as eye catching as many we track, but the paper contributes some important ideas to the study of tactical
- 1 year ago, 19 Dec 2022, 09:49am -
The Best Defensive Asset Class [Allocate Smartly]
In this post we look at what major asset classes have proven to be the best defensive choice in months when the market has fallen over the last 50+ years. We’ll look at multiple government and corporate bond assets, diversified commodities, gold and the US dollar. The results? As expected, a mixed
- 2 years ago, 19 Oct 2022, 11:16am -
Cross-Asset Signals and Time Series Momentum [Allocate Smartly]
This is a test of concepts from the paper Cross-Asset Signals and Time Series Momentum. Standard “time series” momentum is a well-documented feature of financial markets. Assets going up tend to continue going up. In this paper, the authors show that stocks and treasuries can be used to time
- 2 years ago, 16 Sep 2022, 07:07am -
Bold Asset Allocation [Allocate Smartly]
This is a test of Dr. Wouter Keller’s tactical strategy “Bold Asset Allocation” (BAA) from his paper Relative and Absolute Momentum in Times of Rising/Low Yields. Backtested results from 1970 follow. Results are net of transaction costs – see backtest assumptions. Learn about what we do and
- 2 years ago, 29 Aug 2022, 10:04am -
Predicting US Treasury Returns [Allocate Smartly]
This is a test of the paper Predicting Bond Returns: 70 Years of International Evidence. The authors use an ensemble model to trade US and international treasury bonds. Over the last 60+ years the strategy would have produced long-term returns in line with buy & hold, while significantly
- 2 years ago, 16 Jun 2022, 01:10pm -
Trending Fast and Slow [Allocate Smartly]
This is a test of a tactical strategy from the paper Trending Fast and Slow. It trades the S&P 500 by switching between fast and slow momentum based on market volatility. The strategy would have kept pace with the S&P 500, while significantly reducing the worst drawdowns. Backtested results
- 2 years ago, 31 May 2022, 01:51pm -
The 1-2 Punch of Major Losses in Both Stocks and Government Bonds [Allocate Smartly]
This is a follow up to our previous post. Same subject, additional data. Both stocks and government bond funds have suffered major losses this year. Stocks and gov bonds form the core of most portfolios. Gov bonds tend to counterbalance risk assets, helping to smooth returns during periods of market
- 2 years ago, 13 May 2022, 12:00pm -
Government Bonds Have Failed to Deliver When Needed [Allocate Smartly]
Most government bond funds have suffered major losses this year. What is worse is that those major losses have come when they’re needed most, when stocks and other risk assets are also falling. During times of market stress, gov bonds tend to act as a counterbalance to risk assets, but so far this
- 2 years ago, 18 Apr 2022, 10:31am -
Where Tactical Asset Allocation Stands Now (Feb 28, 2022) [Allocate Smartly]
It always feels a little offensive talking dollars and cents at times like this (*), but we hope that by helping investors to have a concrete strategy, we can at least take this one stress off the table. We track 60+ Tactical Asset Allocation (TAA) strategies, allowing us to draw some broad
- 2 years ago, 1 Mar 2022, 10:01am -
Tactical Asset Allocation During Bear Markets and Major Pullbacks [Allocate Smartly]
One of the primary benefits of Tactical Asset Allocation (TAA) is the ability to manage losses during major market declines. TAA does that by reducing allocation to risk asset classes like stocks and real estate, and increasing allocation to defensive assets like bonds and gold. In this post, we
- 2 years ago, 24 Jan 2022, 09:56am -
Financial Mentor's Optimum3 Strategy [Allocate Smartly]
This is an independent test of Optimum3, a tactical asset allocation strategy from Todd Tresidder of FinancialMentor.com. Optimum3 starts as a momentum strategy similar to many of the TAA strategies we track. It combines that with a unique approach to portfolio optimization to enforce a degree of
- 2 years ago, 18 Jan 2022, 01:25am -
Using OECD Composite Leading Indicator Data to Time the Market [Allocate Smartly]
This is a test of the “Global Growth Cycle” strategy from Grzegorz Link that uses OECD Composite Leading Indicator (CLI) data to time the market. We’re going to present these results in an odd way. First, we’re going to replicate Grzegorz’s test, which (as he discusses) includes a degree
- 2 years ago, 30 Dec 2021, 12:32pm -
When the Close Is Not Really the Close (A Geeky Discussion) [Allocate Smartly]
This post covers an issue rarely discussed in backtesting: the day’s last real-time price shown at 4pm ET often differs slightly from the day’s official closing price determined shortly after 4pm. This is not an Allocate Smartly issue; it’s an oddity of the exchanges. Every so often this
- 2 years ago, 18 Dec 2021, 05:21am -
Diving Deeper: Does the Day of the Month Matter? [Allocate Smartly]
Most Tactical Asset Allocation (TAA) strategies trade just once a month. Backtests of those strategies usually assume trades are executed on the last trading day of the month. Why? Monthly asset data is often available further back into history than daily data. Assuming trades are executed at
- 3 years ago, 17 Nov 2021, 09:42am -
Countercyclical Trend Following [Allocate Smartly]
This is a test of a tactical strategy based on contrarian timing of the business cycle, increasing risk during periods of stress and decreasing risk during periods of calm. The strategy adds trend-following to this countercyclical approach to manage short-term market shocks. Backtested results from
- 3 years ago, 27 Aug 2021, 09:47pm -
New Feature: Cluster Analysis [Allocate Smartly]
We track a lot of tactical strategies, and it can be difficult to understand how they all fit together in the big picture. The usual correlation matrix (example) is helpful when drilling down on a single strategy, but it’s near impossible to see the forest for the trees among the 1000’s of data
- 3 years ago, 11 Aug 2021, 01:30pm -
Strategies That Play Well With Others [Allocate Smartly]
We track more than 60 tactical asset allocation strategies. In this post we look at which of those strategies are most often recommended by common portfolio optimization techniques, and why strategies that “play well with others” are not always the best strategies. First, a little background for
- 3 years ago, 7 Jul 2021, 12:15pm -
Paul Novell's Bond-COMP Tactical Bond Strategy [Allocate Smartly]
This is a test of a tactical bond strategy from Paul Novell of Investing for a Living. It rotates between credit bond ETFs and defensive assets based on the same rules as his popular SPY-COMP strategy. Backtested results from 1970 follow. Results are net of transaction costs – see backtest
- 3 years ago, 28 Jun 2021, 11:25am -
Financial Mentor's All-Weather Quad Momentum [Allocate Smartly]
This is an independent test of the tactical strategy “All-Weather Quad Momentum” (AWQM) from Todd Tresidder of FinancialMentor.com. Many of our members came to us from Financial Mentor, so it’s fitting that we add a strategy to our platform that demonstrates his approach to asset allocation.
- 3 years ago, 14 Jun 2021, 11:19pm -
Max Sortino Added to the Portfolio Optimizer (And Whether That Matters) [Allocate Smartly]
We track more than 60 Tactical Asset Allocation strategies, which members can combine together into custom portfolios. To make creating those portfolios easier, we provide an optimizer showing the best performing combinations of strategies based on the member’s investment objective, such as
- 3 years ago, 18 May 2021, 12:07am -
“Accelerating Dual Momentum” Redux: Longer History, Tempered Expectations [Allocate Smartly]
This is a follow up to a strategy we’ve covered previously: Accelerating Dual Momentum (ADM) from EngineeredPortfolio.com. See our first test of ADM, which includes a description of the strategy rules and our own analysis of the strategy. Here we’ve extended our test by 20 years to include a
- 3 years ago, 7 May 2021, 12:48pm -
New Feature: Optimized Model Portfolios [Allocate Smartly]
We track more than 60 Tactical Asset Allocation strategies. Members can combine those strategies into what we call “Model Portfolios”. Combining strategies in this way reduces the risk of any single strategy going off the rails and helps to provide smoother, more consistent investment returns.
- 3 years ago, 26 Mar 2021, 11:42am -
Testing a Risk Premium Value Strategy [Allocate Smartly]
This is a test of a Risk Premium Value strategy (RPV) that allocates to major US asset classes based on current risk premium valuations relative to historical norms. Readers will note the similarity between RPV and other related strategies, such as CXO Advisory’s SACEVS. Backtested results from
- 3 years ago, 2 Mar 2021, 12:43pm -
Keller's Resilient Asset Allocation [Allocate Smartly]
This is a test of the latest tactical strategy from Dr. Wouter Keller: Resilient Asset Allocation (RAA). RAA is intended to be a low turnover strategy, only shifting from a balanced risk portfolio to a defensive portfolio during the most potentially bearish of times. Backtested results from 1970
- 3 years ago, 19 Jan 2021, 08:19pm -
Safe Withdrawal Rates for Tactical Asset Allocation vs Buy & Hold [Allocate Smartly]
In this post we model retirement Safe Withdrawal Rates (SWR) and Perpetual Withdrawal Rates (PWR) for a large collection of tactical and buy & hold strategies. We track 50+ tactical strategies, allowing us to draw some broad conclusions about TAA as a trading style. Learn more about what we do.
- 4 years ago, 28 Sep 2020, 10:46am -
Aspect Partners' Risk Managed Momentum [Allocate Smartly]
This is an independent test of Aspect Partners’ flagship tactical asset allocation strategy Risk Managed Momentum (RMM). By tactical standards, RMM is a very active, very aggressive strategy. It has done an excellent job navigating this difficult year so far. Backtested results from 1970 follow.
- 4 years ago, 17 Sep 2020, 09:27pm -
Momentum Turning Points [Allocate Smartly]
This is a test of two recent papers: Momentum Turning Points and Breaking Bad Trends. Learn more about what we do and follow 50+ asset allocation strategies like these in near real-time. Successful trend-following strategies must balance the “speed” of the trading signal. If the signal is too
- 4 years ago, 11 Sep 2020, 12:57pm -
Adding a 1-Day Lag When Executing TAA Strategies [Allocate Smartly]
We track 50+ public Tactical Asset Allocation (TAA) strategies in near real-time, allowing us to draw broad conclusions about TAA as a trading style. By design, most of those strategies trade just once per month, and most assume that next month’s asset allocation is both calculated and executed on
- 4 years ago, 18 May 2020, 11:09am -