Lethargic Asset Allocation

[fireplan]

Here is a recent paper in which the author tests a tactical asset allocation strategy based on the HBPP:

https://papers.ssrn.com/sol3/papers.cfm ... id=3498092

AllocateSmartly also put this strategy to the test and compared it to HBPP and 60/40:
https://allocatesmartly.com/blending-bu ... llocation/

In a nutshell, LAA holds a static allocation of 25% large-cap value, 25% intermediate-term treasuries, and 25% gold, with 25% switched between short-term treasuries (defensive) and the Nasdaq 100 (QQQ, offensive) based upon a combination of the unemployment (UE) rate and a simple moving average (SMA10). I wish they would have also included a test using long-term treasuries instead of intermediate-term.

The paper also reference's Tyler's Golden Butterfly, although it tests GB within a tactical strategy that switches between GB and IEF based upon the same combination of UE and SMA10. That is a strange choice, as it subverts the ability of the different asset classes to rotate outperformance during different economic regimes. It would have made more sense to me to test only switching the equity portion between offensive and defensive assets.

LAA outperforms HBPP in terms of the long-term CAGR, but at the cost of higher volatility. Even still the sharpe ratio is slightly better and the max drawdown only slightly worse.

[I Shrugged]

Good stuff.