Experience with TAA (Tactical Asset Allocation)

[BlueNote]

Does anyone here have any experience with TAA (tactical asset allocation ) portfolios?

I have been researching this investment style and it has piqued my interest.

I like the idea of getting equity-like returns with bond-like risk. I am also very skeptical, however the evidence I have seen so far is strong but not without faults.

I was thinking of moving my discretionary portfolio to a TAA strategy like those listed in the link below:


Comparing buy & hold, TAA, and quant portfolios


I appreciate any questions, insight, comments etc.



Here are some decent critical writings on TAA as well:


TACTICAL ASSET ALLOCATION: BEWARE OF GEEKS BEARING FORMULAS

Swedroe: Beware Tactical Asset Allocation

The failed promise of market timing

[George the original one]

Bond-like risk is a misnomer if you look at the actual history of bonds. We have a mental picture of bond risk being very low, but the reality is different... perhaps that mental picture is what you're aiming for?

[IlliniDave]

I think there are competing definitions of tactical asset allocation out there. I don't buy TAA products, but I'm guilty of hedging my relatively simple portfolio towards or away from equity funds based on what I feel the relative risk of stocks are. As an example, I'm currently putting more new money into bonds than into stocks, but am not selling any stocks. So it's a very slight hedge, and 10% is the maximum I allow myself to drift from my plan.

[workathome]

I started using a TAA this year for a % of my portfolio. It hasn't done particularly well so far, but usually performs best over indexing through market crashes.

http://investingforaliving.us/2015/05/3 ... 15-update/

[BlueNote]

Bond-like risk is a misnomer if you look at the actual history of bonds. We have a mental picture of bond risk being very low, but the reality is different... perhaps that mental picture is what you're aiming for?

You're right, bonds have a risk profile that includes inflation, interest, credit etc. and I should have been more specific.

I was referring to the general price stability (low draw downs and volatility) of bonds (particularly medium and short term bonds) vs. equity.

[BlueNote]

I started using a TAA this year for a % of my portfolio. It hasn't done particularly well so far, but usually performs best over indexing through market crashes.

http://investingforaliving.us/2015/05/3 ... 15-update/

Which flavor(s) of TAA portfolio are you investing? Is it one of the same ones Paul promotes on that website?

[workathome]

I am using a GTAA Aggressive portfolio. The same as the GTAA Aggressive 3/6, except I opted for 5 assets for a nice 20% split.

It took a lot of reading before I became convinced on trend following. It definitely goes against the grain for me, while value makes more intrinsic sense. I have about 1/3rd of my portfolio targeting trend following, 1/3 value, and 1/3 buy and hold allocations.

[simplex]

@workathome Have you followed through with GTAA?

I'm interested how people fared with TAA like portfolios, both from a return view and from a practical view.

[Lucky C]

I opened a Cambria Trinity Portfolio account through Betterment when it launched last year. Put a little over 1% of my money in there to see what happens... About half of it is in GMOM (Cambria Global Momentum) which uses both momentum and trend. So far that investment has been low volatility with pretty good returns, but so have global markets. Too soon to tell how well it works, and by the time you can tell it may have become too popular to be as effective!

Overall my view is that trendfollowing only has a certain capacity and not every trend follower will get out during steep "air pocket" losses in the market over a short period of time. That will only get worse if trendfollowing gets more popular.

Also, what if the TAA strategy is tuned to 20th century market behavior but future market behavior is a lot different? More/different whipsaws? Faster/slower market cycles? Double-dip recessions? Recession/crash "fake-outs" like we had a year ago?

The big benefit of TAA or trendfollowing is not excess returns in bull markets (won't help there at all) but avoiding large drawdowns. Well there are other strategies that could help you minimize drawdowns, e.g. a value-conscious investor reducing exposure to tech stocks in the late 90's or a real estate investor getting out before 2006, when rent wouldn't even cover the mortgage payment at the prices people were paying for houses. Of course trendfollowing could have helped you capture more of the bubble in those situations, long after the value investors ran away.

I would rather invest like Jacob does but I feel that's difficult in this market environment and for now I am a bit lacking in skills and time to do so effectively. Therefore trendfollowing becomes more appealing as a quick and dirty strategy, but I wouldn't bet a high % of my portfolio on it due to the ways that it could go wrong. Someday I would like to have the diversity of both trendfollowing and value investing in my portfolio - that's what the Trinity Portfolio does but I'm not too sure about it yet.

[hotwired]

I'm trying to figure out whether a couple of assets I have should be included in my tactical asset allocation portfolio or not. I know not everything is suitable (i.e. single company stocks, etc. because single company risk will create whipsaws forcing me in or out needlessly).

2 single country funds: RSXJ, GREK that are "contrarian plays"
high yield / preferred issues: DNI, PFF, PFN, PCI, JPS, and some BDC type investments. I think PSP would be a candidate because it's "sort of" an index fund investing in several BDCs but I also have some dedicated BDC's like MIC, AINV, and ARCC. Then a hard money lender, SACH.

Thanks for your input. The majority of the TAA portfolio will be in vanguard funds. I willl use a 200 day EMA and go all in or all out (cash) when it falls below or above, and will use the last trading day of the month for my signal.

[hotwired]

I struggled whether to us TAA vs. strict B&H then read something that gave me an "aha". Strategy diversification is another means of diversifying. In other words, I don't have to use TAA or BH with 100%. I can commit a % to BH, I can commit a % to TAA, etc.

I will note that TAA tends to underperform during bull markets. I have a feeling we're in for a period of OUTPERFORMANCE now. AND, I think maybe we'll see a period going forward where actively managed funds outperform index funds, only because due to the publicity, everyone over the age of 5 now knows that "buying and holding index funds beats everything else".

[hotwired]

What I DONT like is missing out on gains like this: https://tinyurl.com/y4fckz4g
This is vanguard energy and see around December 2015 the son of a gun went up from 38 all the way to 54 before it triggered the buy signal by crossing the 200 day exponential moving average. That's a BUTT LOAD of gain to leave on the table and I don't like it. This does go hand in hand with the idea that TAA does not beat but and hold during a bull market. There are quite a few techniques that use Buy and Hold during bull markets and switch to TAA during bear or sideways based on a handful of economic indicators. I think I'd swing that way all day long. Gets the best of both worlds.

[frihet]

I use TAA for about 1/3 of my assets. I used to have them in a Golden Butterfly. But it is my hope that this allocation will give a slightly better edge over time. By increasing the risk portion with 20 % and then use moving averages/recession indicator to limit downside risk. Even if this strategy would not work completely its still a mix of GBP and a 60/40 portfolio so it should give stability either way.

For the Scandinavian speakers google "traden om strategier for fonder" a forum thread run by one of these nerds that can't help but share his wisdom, sounds familiar? Serious strategy testing going on there and is where I've gotten the info/inspiration for implementing this and another momentum strategy.

TAA Simple allocation

Risk portion
Home market 20%
Global 20%
Real Estate 20%

Makes up the risk portion of the portfolio. For this part I use Unrate and its trailing 12 month moving average as overriding indicator for when to put on/off trend following. http://www.philosophicaleconomics.com/2016/02/uetrend/

The other art are

Safety Portion
Long Bonds 20% (actually medium for swedish conditions, as that is what is available)
Gold 20%

Short term bonds switched to when any assets are below their 200day moving avarage, for the risk portion Unrate needs to show recession risk. This i supposed to limit wrong signals.

I will write about the other strategy in the other momentum thread.

[hotwired]

What is a good tool for tracking the moving average levels? Is it accurate enough to just go to Yahoo finance and use the charts there, or are there more diligent tools?

I should note, all the reflections I did earlier on this post, I never followed through with. My portfolio got more and more complex, never used TAA and when the SHTF my stuff went down 35-40% vs. the varkets 25-30. Scrambling now to undo my laziness and failure to listen to my own inner wisdom.