Tactical Asset Allocation Research Archives

Which Asset Allocation Weights Work the Best?

What is the optimal method to weigh an index? Everyone seems to have a story these days for the "best" way to weigh an index. In this study we look at simple ways to weigh a large-cap stock index using prices only. Bottom-line up front: Low volatility worked the best on a risk-adjusted basis over the past 87 years. However, low volatility, was close followed by momentum, equal-weighting, and value-weighting, respectively. Across the board, results are similar.

How to Pick Smart Beta ETFs

Investors are probably unaware of the price they are paying for the "active" piece of Smart Beta. Using a simple framework, we show that buying a Smart Beta product at 45bps is equivalent to paying 5bps for a generic passive exposure and 138.33 bps for the active exposure! How many investors are aware that "low-cost" smart beta products might be implicitly charging fees that are equivalent to many active mutual fund fees?

Daily Academic Alpha: Momentum Investing and Asset Allocation

The results in this paper won't surprise most who are regular readers, but the paper below does a nice job explaining things in a simple [...]

Commodity Investing 101: Basic Insights Most Advisors Don’t Know

Unlike equity and bond investing, investing in commodities is a less familiar undertaking for many. Commodities behave differently than stocks and bonds, pose different risks, [...]

How to Use Factor Funds in a Diversified Portfolio

Active management has been out of favor for a while--high fees, high tax burdens, and poor long-term performance. But with the slow rise of actively [...]

Combining volatility, momentum, and trend in asset allocation

The Effective Combination of Risk-Based Strategies with Momentum and Trend Following Gregory Guilmin A version of the paper can be found here. Want a summary of [...]

Global 60/40 versus Domestic 60/40

The Harvard Management Company report was recently released here. h.t. Tom for pointing out. The biggest surprise was the spread in returns between the global 60/40 [...]

Can Investors Achieve Commodity Exposure via Equities?

This past year we examined the possibility of replicating commodity exposure via equities. The project was spurred by an insightful research report from MSCI, which showed some [...]

How Market Volatility Affects Our Brains

The current market volatility is justifiably causing people stress. Nobody wants to see their hard-earned wealth get vaporized. But how does increased stress affect decision-making? A [...]

Rise of the Machines: Predicting Winners and Losers on the Robo-Advisor Battlefield

Robos are changing the landscape of financial services and consumers will reap the rewards. But will the computers replace humans? Unlikely. The psychology coach benefit is hard to replicate with a computer. However, robos will encourage human-based advisors to up their game. Slothosaurus will go extinct—thankfully! First iteration passive robo-advisors will create a lot of value for consumers, but capture little value for their VC investors, unless perhaps they are bought out. Finally, differentiated robo advisors and traditional advisors who embrace technology will score big wins for both consumers and their shareholders.

Combining Value and Momentum in Stock Selection and Market Timing

Recently, we wrote two posts about how to combine Value and Momentum for stock selection purposes (Part 1 and Part 2). We followed this piece with a post [...]

Crisis Alpha: Surprising Ways to Hedge Stock Portfolio Risk

Investing in the current environment is difficult. Most, if not all, asset classes have high nominal prices, suggesting low nominal expected returns. Not exactly exciting. [...]

Avoiding the Big Drawdown with Trend-Following Investment Strategies

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.

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