Strategic Allocation

We have updated monthly allocations and performance data for the Simple Asset Class ETF Momentum Strategy (SACEMS) and the Simple Asset Class ETF Value Strategy (SACEVS). We have also updated performance data for the Combined Value-Momentum Strategy.

We have updated the Trading Calendar to incorporate data for August 2025.

The home page, Simple Asset Class ETF Momentum Strategy (SACEMS) and Simple Asset Class ETF Value Strategy (SACEVS) now show preliminary positions for September 2025. SACEMS rankings probably will not change by the close. SACEVS allocations are unlikely to change by the close.

Do alternative “Cash” (deemed risk-free) instruments materially affect performance of the “Simple Asset Class ETF Momentum Strategy” (SACEMS)? Changing the proxy for Cash can affect how often the model selects Cash, as well as the return on Cash when selected. To investigate, we test separately each of the following yield and exchange-traded funds (ETF) as the risk-free asset:

• 3-month Treasury bills (Cash), a proxy for the money market as in base SACEMS
• SPDR Bloomberg Barclays 1-3 Month T-Bill (BIL)
• iShares 1-3 Year Treasury Bond (SHY)
• iShares 7-10 Year Treasury Bond (IEF)
• Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP)
• iShares TIPS Bond (TIP)

We focus on compound annual growth rate (CAGR) and maximum drawdown (MaxDD) as key performance metrics and consider Top 1, equally weighted (EW) EW Top 2 and EW Top 3 SACEMS portfolios. Using end-of-month total (dividend-adjusted) returns for the specified assets during February 2006 (except May 2007 for BIL and October 2012 for VTIP) through July 2025, we find that:

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Does adding an exchange-traded fund (ETF) or note (ETN) to the Simple Asset Class ETF Momentum Strategy (SACEMS) boost performance via consideration of more trending/diversifying options? To investigate, we add the following 24 ETF/ETN asset class proxies one at a time to the base set and measure effects on the Top 1, equally weighted (EW) Top 2 and EW Top 3 SACEMS portfolios:

Alerian MLP ETF (AMLP)
VanEck Vectors BDC Income (BIZD)
Vanguard Total Bond Market (BND)
SPDR Barclays International Treasury Bond (BWX)
Invesco DB Agriculture Fund (DBA)
iShares MSCI Emerging Markets (EEM)
First Trust US IPO Index (FPX)
iShares iBoxx High-Yield Corporate Bond (HYG)
iShares 7-10 Year Treasury Bond (IEF)
iShares Latin America 40 (ILF)
iShares National Muni Bond ETF (MUB)
Invesco Closed-End Fund Income Composite (PCEF)
Invesco Global Listed Private Equity (PSP)
IQ Hedge Multi-Strategy Tracker (QAI)
Invesco QQQ Trust (QQQ)
SPDR Dow Jones International Real Estate (RWX)
ProShares UltraShort S&P 500 (SDS)
iShares Short Treasury Bond (SHV)
ProShares Short 20+ Year Treasury (TBF)
iShares TIPS Bond (TIP)
United States Oil (USO)
Invesco DB US Dollar Index Bullish Fund (UUP)
ProShares VIX Short-Term Futures (VIXY)
ProShares VIX Mid-Term Futures (VIXM)

We focus on gross compound annual growth rate (CAGR) and gross maximum drawdown (MaxDD) as key performance statistics, ignoring monthly reformation costs. Using end-of-month, dividend-adjusted returns for all assets as available during February 2006 through July 2025, we find that: Keep Reading

Are all of the potentially trending/diversifying asset class proxies used in the Simple Asset Class ETF Momentum Strategy (SACEMS) necessary? Might one or more of them actually be harmful to performance? To investigate, we each month rank the nine SACEMS assets based on past return with one excluded (nine separate test series) and reform the Top 1, equally weighted (EW) Top 2 and EW Top 3 SACEMS portfolios. We focus on gross compound annual growth rate (CAGR) and gross maximum drawdown (MaxDD) as key performance statistics, ignoring monthly portfolio reformation costs. Using end-of-month, dividend-adjusted returns for SACEMS assets during February 2006 through July 2025, we find that: Keep Reading

What happens if we add bitcoin, as proxied by Grayscale Bitcoin Trust ETF (GBTC), to the asset universe for the Simple Asset Class ETF Momentum Strategy (SACEMS), which each month holds the top one (Top 1), the equal-weighted top two (EW Top 2) or the equal-weighted top three (EW Top 3) asset class proxy ETFs from a diversified set of nine based on total return over recent months? To check, we run the SACEMS model with (w/ GBTC) and without (Base) adding GBTC as a tenth available asset. Using end-of-month dividend-adjusted prices for baseline SACEMS asset class ETFs and GBTC as available during February 2006 through June 2025, we find that:

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In times of economic uncertainty, traditional safe haven assets (bonds and gold) have often failed. Is there a more robust safe haven approach? In his July 2025 paper entitled “Defense First: A Multi-Asset Tactical Model for Adaptive Downside Protection”, Thomas Carlson introduces the Defense First portfolio, which employs four macro-hedging assets:

• iShares 20+ Year Treasury Bond ETF (TLT – inception July 2002): for deflationary/disinflationary environments and Fed policy easing.
• SPDR Gold Shares (GLD – inception November 2004): for monetary instability and declining real rates.
• Invesco DB Commodity Index Tracking Fund (DBC – inception February 2006): for stagflation and commodity supply shocks.
• Invesco DB US Dollar Index Bullish Fund (UUP – inception March 2007): for times of global stress or funding crises.

He each month ranks these four assets based on equal-weighted momentum scores over the past 1, 3, 6 and 12 months. He substitutes SPDR S&P 500 ETF (SPY – inception January 1993) for any of the four that have weaker momentum than 90-day U.S. Treasury bills. He assigns weights of 40%, 30%, 20% and 10% to the resulting first, second, third and fourth selections. Prior to fund inception dates, he simulates returns using Vanguard mutual funds, asset class indexes or futures proxies. His benchmark is the Vanguard 500 Index Investor (VFINX). Using simulated and actual monthly returns for the specified funds during January 1986 through June 2025, he finds that: Keep Reading

The value of holdings in passive (capitalization-weighted, index tracking) U.S. equity funds now exceeds that in active U.S. equity funds. In their May 2025 paper entitled “Passive Aggressive: The Risks of Passive Investing Dominance”, Chris Brightman and Campbell Harvey explore implications of the dramatic growth in passive investment strategies, including loss of diversification and mispricing. Using recent market data and results from past research, they conclude that:

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The four iShares Core Asset Allocation exchange-traded funds (ETF) offer exposures to U.S. stocks, global stocks and bonds semiannually rebalanced to fixed weights, as follows.

1. iShares Core Conservative Allocation (AOK) – 30% stocks and 70% bonds (30-70).
2. iShares Core Moderate Allocation (AOM) – 40% stocks and 60% bonds (40-60).
3. iShares Core Growth Allocation (AOR) – 60% stocks and 40% bonds (60-40).
4. iShares Core Aggressive Allocation (AOA) – 80% stocks and 20% bonds (80-20).

Each fund holds a portfolio of seven iShares Core stocks and bonds ETFs, thereby compounding management costs and fees. Do these funds of funds offer attractive performance? To investigate, we compare performance statistics for these funds with those for comparably weighted and rebalanced combinations of SPDR S&P 500 Trust (SPY) and iShares 20+ Year Treasury Bond (TLT), or SPY and iShares iBoxx $ Investment Grade Corporate Bond (LQD). We start tests at the end of December 2008 (about a month after inception of the asset allocation ETFs). We ignore semiannual rebalancing frictions for the SPY-TLT and SPY-LQD comparison strategies. Using semiannual dividend-adjusted prices for all specified funds during December 2008 through June 2025, we find that: Keep Reading

How has “A Quantitative Approach to Tactical Asset Allocation”, authored by Meb Faber in 2006 and published in The Journal of Wealth Management in 2007, performed post-publication? In his April 2025 paper entitled “Global Tactical Asset Allocation Updated Results and Real-Market Implementation Using Python and IBKR”, Carlo Zarattini revisits this influential strategy, which at the end of each month during 1972 through 2005 allocates 20% of funds to each of the following indexes when the index is above its 200-day simple moving average (SMA200):

1. S&P 500 Index
2. MSCI EAFE Index
3. U.S. 10-Year Government Bonds
4. Goldman Sachs Commodity Index (GSCI)
5. National Association of Real Estate Investment Trusts (NAREIT)

The allocation for any index below its SMA200 goes to 3-month U.S. Treasury bills (T-bill). He updates strategy performance and explores how different rebalancing cycles and frequencies affect outcome. He tests a tranche approach to mitigate the risk of picking an unlucky rebalancing cycle/frequency and imposes 0.1% index-cash switching frictions as a robustness test. He further provides a Python script to automate rebalancing through Interactive Brokers. Using daily levels of the five indexes and the T-bill yield to support a January 2006 through March 2025 strategy extension, he finds that:

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