TAA Investing

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October turned out to be quite a strong month for US stocks as the historical seasonality suggested. Lets see what that strong showing did to the tactical asset allocations for November.

Here are the tactical asset allocation updates for November 2015. All portfolio updates are online as part of  Paul’s GTAA 13 Portfolio New  sheet.

First, for the basic portfolios – the GTAA5 and the Permanent Portfolio. GTAA5 is now 60% invested with VTI and VNQ going to invested this month. For the timing version of the Permanent Portfolio VTI went back to invested for this coming month.

Screen Shot 2015-10-31 at 2.03.54 PM

Now for the more aggressive GTAA AGG3 and AGG6 portfolios. Below is the snapshot of all the 13 asset classes.

Screen Shot 2015-10-31 at 2.04.14 PM

Big changes for both AGG3 and AGG6 this month. AGG3 is goes to fully invested with equal allocations to MTUM, VNQ, and VTV. AGG6 is mostly invested with 33% of the portfolio still in cash.

Performance for the portfolios so far this year is in the table below. Numbers are for each month. The figures are estimates taken from a variety of sources. I don’t do detailed performance tracking until the end of the year. For comparison, I ran the YTD performance for the IVY B&H13 portfolio, from which the AGG3 and AGG6 portfolios are derived. That portfolio is down -5.23% for the year.

Screen Shot 2015-10-31 at 2.15.05 PM

If you’re a fan of the  Antonacci dual momentum  GEM and GBM portfolios, GEM is back in US stocks. The bond portion of GBM is now in cash. I’ve also made my  Antonacci tracking sheet  shareable so you can see the portfolio details for yourself.

That’s it for this month. These portfolios signals are valid for the whole month of Novemeber. As always, post any questions you have in the comments.

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28 thoughts on “ Tactical asset allocation – november 2015 update

  1. Can some one answer the following question: since using a moving average tool to get in and out, I must assume that one always gets out (sells) a bit too late and also gets back in (buys back) a bit too late. If my assumption is correct, all moving average strategies deliver a lower performance than B&H for a long term investor. Is that correct?

    1. Erwin,

      Not true. At least not historically. trend following strategies have delivered better returns than buy and hold over the long term. In general, trend following strategies outperform in bear markets, under perform in bull markets, and outperform over a full bull/bear cycle. You can read the research on the different portfolios in my portfolios page.

      Paul

  2. Great work Paul. For the AGG3 and AGG6, are you using the average of the 3,6 and 12 month returns to determine the top performers? Wondering if you ever did any testing on the best time frames. I believe you did mention in another post that 7 month returns showed the best results over the longer term back testing period?

    1. I’m using the avg of 1,3,6, and 12 month total returns. Yes, I’ve done some longer term backtesting and there have been several research papers on the topic. 6-7 months has done the best (esp since 1973 or so) over all but it moves all over the place, from 1 month all the way to 12. For example, since the low in 2009, 3 months has done the best. Taking an average reduces the chances of ‘bad luck’. Also, the avg of 1,3,6, and 12 months returns is right around 6 months.

      Paul

      1. Thanks for the reply Paul. Yes it seems like over recent years the shorter timeframes have performed better. There was an analysis done by Hedgehunter of Antonacci’s Dual momentum that shows superior results using a weighted 50% 3 month; 30% 6 month; and 20% volatility for the 8 year period from June 2006 into 2014.

        1. Yep, I’ve seen that. I backtested the best combination since the beginning of 2007 for AGG3 and the best performance was 50% 3 month, 50% 6 month, no volatility adjustment. The only problem I have with all this is the very very limited sample set.

          Paul

          1. Yes, the sample set is limited. Antonacci is a proponent of the 12 or 10 month look back over the longer term; however, many of us older folks, don’t take that longer term view. Probably the best approach is to divide up a portfolio and use 10 or 12 month for a portion, 6 month, and 3 month. This can change a portfolio and add a degree of diversification using the same investment pool, to minimize risk and enhance returns, i would think.

          2. Of course the avg of 12, 3, and 6, would be right at 7 months… 🙂 The longest term studies show that absolute momentum at about 6-7 months is the clear winner over the long term. Of course that could change….

            IMO, the biggest benefit of using a few different systems is the behavioral component. Higher chance of one of the systems outperforming. This is one of the reasons I continue to be a quant investor, which is closer to buy and hold, than TAA systems.

            Paul

          3. Paul
            I understand there are many quant systems that beat the DOW and S&P, but how are they different than buy and hold if a 2008 rolls around again?

  3. Question: given that moving averages are backward looking, is it not a fact that in the long term they deliver a lower perform than B&H? My thoughts are that by definition a moving average flags a sell signal late and flags a buy signal late. Therefore, if one ignores volatility, B&H is a better alternative.

    1. No. At least not historically. Another place to look is the historical performance of the various portfolios both trend following and buy and hold. See here .

      Paul

  4. Hi Paul,
    I’ve run into Nina’s (and later yours) blog via Technomad’s blog in preparation for full-time rv-ing. Great stuff, it helped me a lot in getting my finances under control. Thank you!
    BTW, I noticed you’re using GooSheets for your work and would like to share a trick I use to get SMAs straight into a cell (you may know it already).
    Assuming you have the ticker symbol in a cell “A1”, the formula
    =AVERAGE(INDEX(GOOGLEFINANCE(A1, “price”, today()-304, today(), “DAILY”),,2))
    gets you 10 months SMA (304 is 10*30.43).
    seanpj

    1. Hey Sean, glad I could help and thanks for the tips on Google Finance. I don’t use Google Finance because of I’ve found their price data to be late and quite often wrong. Wrong being the big one.

      Paul

  5. Hi Steve,

    Thanks for the update.

    A question about the timing version of the Permanent Portfolio: Where do you place the funds marked as red (cash)? Do you invest them in the SHY ETF too? Which would mean that 75% of the funds are invested in SHY this month.

    Does the same apply to AGG3?

    Cheers.

    ALberto

      1. Hi Paul,

        I just wanted to clarify that you are indeed putting the cash portions of the GTAA portfolios in SHY.

        If so, is this what Faber recommends, or is this an adjustment you have made?

        Thanks,
        Tony

        1. That’s the model. Not my approach. You could argue that in this low rate environment trading SHY is not worth the cost but in general that has not been the case.

          Paul

  6. One more question about all the portfolios: Do you place market orders the day before the market opens (selling and/or buying) ? Or limit orders?

  7. Another question about permanent portfolio allocations:
    I know traditionally each class gets 25% allocation and in the modified version, any that have price < 10 month SMA would go to cash (which I presume is SHY or equivalent). So currently, 25% to VTI and 75% to SHY (or I use VGSH, which is equivalent, but commission free in Vanguard). But, how about modifying the allocation to equal weight each class that has price above 10 month SMA? For example, this month that would give 50% in VTI and 50% in SHY instead of 25%-75% respectively. Wondered if you had any thoughts/modelling on this allocation approach? I might guess it would offer higher returns at slightly greater risk, i.e., larger draw downs. But, I don't have the capability to model it.

    Thanks again for the great work in this blog!

  8. The dramatic market recovery essentially aligned with calendar month of October demonstrates one of the pitfalls of a market timing/momentum approach vs buy and hold. Choppy markets are the nemesis of all timing models and test our resolve and ability to stick with a TAA system. I believe Its a price worth paying at times for portfolio protection from prolonged bear markets.

    1. Yep. Agree. That’s one of the reasons that over the long term momentum, trend following systems continue to outperform.

      Paul

      1. Hope so because all I’ve seen is about 9.5% in losses since starting this strategy in May. An it keeps going down.

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