Reading anything interesting? Send me your links. . .
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It is always nice to see a model continue to perform out-of-sample. Below are the results of the “Quant Approach to TAA” paper since it left off in 2005. Equity-like returns with bond-like volatility and low drawdowns. Obviously much of this outperformance is due to the spectacular run in commodities and the (relatively) high allocation this model uses at 20% of the portfolio. This does not include June and the additional 5% dump in the S&P500. One could use five simple ETFs to replicate the asset classes mentioned in the paper (VTI or SPY, VEU or EFA, BND or AGG, VNQ or IYR, and DBC or GSG).
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Alpha’s top 100 hedge funds. ESL is the worst performer at -27%. With the exception of 4 funds, all are US and UK firms.
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I love napping (and it looks like I’m not the only one) – here is a good link on “how to nap“.
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I’m giving Jott a try, and so far I like it.
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The Netflix Player by Roku – very cool.
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Some really cool “American consumer” art over at Chris Jordan’s site. Can you guess what the below picture depicts?
meb, my sole misgiving about your model is your allocation to tbonds. given a 4% handle I see liitle to no upside and plenty down. without bonds, what’s the vol?
Since the timing model is 70% long, on average, the bond/cash allocation is really closer to 50% so yes there is an argument for excluding bonds.
For the timing model without bonds return increases about 60 bps with vol increasing about 130 bps. MaxDD increases from ~10% to -12%. Sharpe only decreases about .05. But then again, 1973-2007 has been a pretty good period for bonds.
An investor could use other bonds like emerging market or junk – just depends what they are looking for.
Hi Meb, do you have any data on using the 10 year Treasury (IEF) for the bond component vs the total bond market (BND, AGG)?
Finally, any back testing evidence as to whether splitting up foreign developed vs emerging improves return? In other words 10% EFA or VEA and 10% VWO or EEM?
Thanks
Mebane: yes, I’m reading something interesting: “The Diversity Recession”.
http://www.takimag.com/site/article/the_diversity_recession_or_how_affirmative_action_helped_cause_the_housing/
Thanks for sharing the information regarding exclusion of bonds; after a 20 plus year bull market this is something that I am hesitant about as well
Shrink rap – The paper actually uses the 10-Year Treasury. . .And yes, I think the more you divide up the asset classes the better it will perform.
Is using TIPS instead of cash, when the assets are below the 10 mo. MA, making any sense? How do you look up at this issue(links appreciated), because some recent articles point that’s not the time to buy TIPS.
The new forever stamp would seem to open up a new asset class: US postage. The one ounce first class postage stamp has returned about 4.4% nominal since 1975. This would be a bet against the government getting more efficient or lowering prices…