Tactical Asset Allocation Research

//Tactical Asset Allocation Research

Expanding the Efficient Frontier with Value and Momentum Strategies

By | 2017-08-18T17:05:19+00:00 December 9th, 2015|Research Insights, Value Investing Research, Momentum Investing Research, Tactical Asset Allocation Research, $SPY|

Awww...modern portfolio theory...that feel-good construct I teach to all of my graduate-level finance students each year. Simply input 1) a vector of expected returns and 2) a covariance matrix into your computer, and voilà, you [...]

Avoiding the Big Drawdown with Trend-Following Investment Strategies

By | 2017-08-18T17:09:50+00:00 August 13th, 2015|Research Insights, Key Research, Tactical Asset Allocation Research|

Simple timing rules, focused on absolute and trending asset class performance, seem to be useful in a downside protection context. Our analysis of the downside protection model (DPM), applied on various market indices, indicates there is a possibility of lowering maximum drawdown risk, while also offering a chance to participate in the upside associated with a given asset class. Important to note, applying the DPM to a portfolio will not eliminate volatility and the portfolio will deviate (perhaps wildly) from standard benchmarks. For many investors, these are risky propositions and should be considered when using a DPM construct.

The Robust Asset Allocation (RAA) Index

By | 2017-08-18T16:55:15+00:00 December 2nd, 2014|Research Insights, Key Research, Introduction Course, Tactical Asset Allocation Research|

Robust asset allocation solutions should be relatively simple, minimize complexity, and be robust across different market regimes. Simultaneous to these requirements, the solution must be affordable, liquid, simple, tax-efficient, and transparent, otherwise, many of the benefits of the solution will flow to the croupiers and Uncle Sam. We recommend that investors explore our robust asset allocation framework and go for the do-it-yourself solution. You'll be paying yourself 1%+ a year via saved RIA fees. Is this the only solution? No. But any solution must be robust, simple, tax-manageable, and low-cost. This is our best effort to develop a simple model. Developing a complicated model is easy; simple is difficult.

The World’s Longest Trend-Following Backtest

By | 2017-08-18T16:55:06+00:00 November 9th, 2015|Key Research, Tactical Asset Allocation Research|

Were in the middle of an academic research project and we ran a simple long-term trend-following model from January 1, 1801 to September 30, 2015. Recently, there has been some research on the performance of trend-following rules [...]

Tactical Asset Allocation: Beware of Geeks Bearing Formulas

By | 2017-08-18T16:56:15+00:00 May 19th, 2015|Research Insights, Key Research, Tactical Asset Allocation Research, $GMOM|

How Should I Tactically Allocate my Assets? A lot of investors ask this question as their wealth grows and the number of financial products grows exponentially. In order to generate a response, investors pay money to [...]

A Tactical Asset Allocation Horserace Between Two Thoroughbreds

By | 2017-08-18T17:11:14+00:00 February 13th, 2015|Research Insights, Tactical Asset Allocation Research, $SPY|

Executive Summary: Dual Momentum, a concept pioneered by Gary Antonacci, intelligently combines elements of two types of momentum investing strategies -- absolute and relative momentum -- into a comprehensive asset allocation system. His paper shows that [...]

Eureka! A Valuation-Based Asset Allocation Strategy that Might Work

By | 2017-08-18T17:05:25+00:00 July 21st, 2015|Tactical Asset Allocation Research|

We've had a few posts showing that asset allocation systems relying on market valuation indicators (e.g., Shiller CAPE ratios) as a timing signal may end up in disappointment... Can market Valuations Be Effective Market-Timing Signals? Dissecting [...]

The Hated. The Feared. The Amazing. The US Treasury Bond.

By | 2017-08-18T16:55:33+00:00 January 2nd, 2015|Tactical Asset Allocation Research, Macroeconomics Research|

As "everyone" seems to know, the US 10-year Treasury bond has a low relative yield and is "inevitably going to rise at some point in the future." We have no strong feelings one way or [...]

Dissecting Goldman’s 99 percentile Market-Timing Signal

By | 2017-08-18T17:06:48+00:00 February 26th, 2015|Research Insights, Tactical Asset Allocation Research, $SPY|

Investors have been worrying, at least for the last several years, that the market is overvalued. By some measures this is undoubtedly true. Just yesterday we highlighted that the Shiller CAPE is in the 94th percentile as of [...]

Market Valuations based on CAPE–A Deeper Dive

By | 2017-08-18T17:00:58+00:00 February 25th, 2015|Research Insights, Value Investing Research, Uncategorized, Tactical Asset Allocation Research, $SPY, $IEF|

We have discussed market valuations in the past, but the issue of market valuations was recently raised on CNBC, when Robert Shiller suggested he may shift out of the US and buy Europe. When Shiller speaks, we [...]

Long/Short Hedge Fund Factors: Low-Cost Downside Protection?

By | 2017-08-18T17:01:21+00:00 July 1st, 2015|Uncategorized, Tactical Asset Allocation Research, $qual, $qai|

The holy grail of financial markets is finding strategies that have misaligned risk and reward characteristics. In the traditional view, investors try to do the following: Identify strategies that have high returns, then... find ways [...]

Tactical Asset Allocation with Market Valuations: Magic of Myth?

By | 2017-08-18T16:56:18+00:00 April 14th, 2015|Research Insights, Value Investing Research, Tactical Asset Allocation Research, $SPY, $vlue|

Executive Summary Although it has been very difficult to overcome our initial skepticism, we've finally accepted the notion that simple technical analysis may serve as an effective way to manage risk and to time markets. [...]

Does “Sharpe Parity” work better than “Risk Parity?”

By | 2017-08-18T17:06:15+00:00 January 27th, 2015|Research Insights, Tactical Asset Allocation Research|

Strategies employing risk parity have been favored by mutual funds and other market participants the past few years. The attraction of risk parity strategies are two-fold: 1) the great story associated with the approach and [...]

Sobering 10-Year Market Predictions from CFOs

By | 2017-08-18T16:56:49+00:00 June 15th, 2015|Tactical Asset Allocation Research, $SPY, Macroeconomics Research|

The Graham-Harvey survey is complete and the expectations of CFOs are available for review. As the figure below highlights, expected returns on the S&P 500 have been gradually decreasing over time. As of Q1 2015, [...]

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Daily Academic Alpha: Warren Buffett Market Predictions

By | 2017-08-18T17:07:03+00:00 August 3rd, 2015|Tactical Asset Allocation Research|

Last week we had a fairly long post on a valuation based asset allocation strategy that might actually work. This post followed a couple of other research projects on the issue, which showed limited evidence [...]

Book Review: Cracking the Emerging Markets Enigma by Andrew Karolyi

By | 2017-08-18T17:09:01+00:00 July 16th, 2015|Book Reviews, Tactical Asset Allocation Research, $eem|

A recent IMF World Economic Outlook survey projected that in 2015-2016 advanced economies will grow at 2%-2.5% rate, while emerging and developing markets are growing at a more robust 4%-5%, led by India and China, [...]

Book Review: A Wealth of Common Sense by Ben Carlson

By | 2017-08-18T17:09:02+00:00 July 8th, 2015|Book Reviews, Tactical Asset Allocation Research|

Ben Carlson splashed onto the blog scene a few years ago with his hit website, aptly named, "A Wealth of Common Sense." My initial reaction was, "Oh great, here we go again. Some kid trying to pretend [...]

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The First Academic Paper with a Shotgun Picture in it

By | 2017-08-18T16:55:36+00:00 July 2nd, 2015|Tactical Asset Allocation Research|

Here is one of the figures in a Journal of Finance paper published in 2013 by N. Garleanu and L Pedersen. The figure depicts various portfolio optimizations under different assumptions and then has a visualization [...]

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Where are the Cheap High Quality Value Stocks?

By | 2017-08-18T16:52:23+00:00 May 20th, 2015|Tactical Asset Allocation Research|

Here is a snapshot of a model portfolio built on the Quantitative Value philosophy. Note: we exclude financials in our analysis, so by construction they have a 0% allocation May 2017 Update on sector allocations Consumer [...]

Performance Attribution for Active ETFs and Active Mutual Funds

By | 2017-08-18T16:59:25+00:00 May 14th, 2015|Investor Education, Tactical Asset Allocation Research|

Peter Hecht, Ph.D., a fellow Chicago Finance PhD, and vice president of Evanston Capital Management, recently posted an article introducing a practical solution for active portfolios return attribution: Finally, a practical solution for decomposing returns into alpha and [...]

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