Tactical Asset Allocation + HBPP an intriguing combo

[ochotona]

In large part because of the whackiness of November 2016, which created an interesting blip between the S&P 500 and international markets. Unless the S&P goes crazy this month, it’s clearly international next month. I reckon it doesn’t matter what you do when it’s this close as long as you don’t make exactly the wrong choice every time it happens

I just really despise getting whipsawed, because it's really big sums. Since we know the past volatility occurred, I figure we might as well take it into account. It's just discarding outliers to get a cleaner dataset.

[HappyMan]

Schwab Mutual Funds and ETF

SWPPX tracks the S&P500 index. The momentum score is 23.57%

Mixing together SWISX 81%, SCHE 19% will approximate the ACWI ex-US. The momentum score is 23.38%

Using these securities, GEM is in the S&P500

Hi,

Why do you prefer mutual funds over ETFs?

[ochotona]

I am getting to know mutual funds again because it can be difficult to trade ETFs without getting your wallet picked. You have to avoid market open, market close, use limit orders, trade small blocks, or else you could get a bad price. With mutual funds you don't have to do any of that you just put in the order it trades at the NAV price after market close.

[HappyMan]

You bring up an interesting aspect of mutual funds. It explains your precision with the percents on your blog, to which I subscribed. Currently, I am all in ETFs (SCHF and DBAW) but your posts put me on the fence now.

Antonacci lists these benefits of ETFs over mutual funds:
- lower operating expenses ,
- more trading liquidity ,
- more transparency ,
- and more efficient tax structures.

How do you handle these while staying with mutual funds?

Edited: grammar.

[ochotona]

The Schwab ETFs and Mutual Funds have same expense ratios (very low), the MF is liquid once a day!, I trade in an IRA so tax efficient is moot for me, both track indices so totally transparent.

[HappyMan]

...

Could not respond on your blog, but Gary Antonacci talks about different models on pages 98 and 101-122 in his FAQ,

"On page 101 and 112 of my book I give a simplified logic for GEM so anyone can easily implement it using a free charting website. There is a minor difference if you calculate the signals as I discus on page 98 of my book. I mention there that I determine absolute momentum using only the S&P 500 index, since the U.S. leads world equity markets. I cite a supporting reference. This means we may occasionally be in aggregate bonds if the trend in U.S. stocks is down even when non-U.S. stocks are the strongest asset. "

[ochotona]

Could not respond on your blog, but Gary Antonacci talks about different models on pages 98 and 101-122 in his FAQ,

Thanks! After some reflection, I like the simpler approach; I just hate getting whipsawed, so any excuse to avoid trading I'll take. The simpler approach trades less. And I just don't know how persistent the role of US Stocks as bellwether to the world will be, what with the rise of the China, the Asian Tigers, India, etc.

[ochotona]

Gary Antonacci interview on the Meb podcast:

http://mebfaber.2.cavendoclient.com/201 ... -momentum/

[HappyMan]

Here is also a review of the strategy with lists of advantages and disadvantages,

http://awealthofcommonsense.com/2015/07 ... -momentum/

As the author rightfully noticed, GEM overperform S&P before 2009 because it does better in bearish markets. Perhaps, someone can give it another evaluation during the current bullish market.

[ochotona]

GEM has been trailing the SP500 since the bull market began, but it has done fine. The real payback comes over the completion of the market cycle.

[HappyMan]

BTW, why add TLT, GLD, and cash to the mix? For example, some analytics say that GLD will go down for a good while.

[ochotona]

BTW, why add TLT, GLD, and cash to the mix? For example, some analytics say that GLD will go down for a good while.

The idea behind this post and my portfolio is I'm adding to the robustness of the HBPP structure by adding trend-following global equities. This allows me to increase the equity slice without making the whole portfolio more risky that a regular HBPP.

Currently,
10% gold / platinum / agricultural commodities
10% cash
30% bonds (but medium duration, not long)
50% equities

As far as gold... the only function of gold is to embarrass people who try to guess what the price will be, as far as any of us here can tell. I don't think it's a worthwhile activity, beyond the amusement factor.

[Kbg]

Summoning the inner HB Yoda for HappyMan: Do, or do not. There is no predict.

[ochotona]

Summoning the inner HB Yoda for HappyMan: Do, or do not. There is no predict.

And Dual Momentum GEM also does not predict... it just follows the price action. No one has to forecast anything.

[Kbg]

Agreed.

[ochotona]

No change to the GEM portfolio for December 2017. Still in 81% SWISX + 19% SCHE, or 100% in VEU.

[InsuranceGuy]

[deleted]

[HappyMan]

No change to the GEM portfolio for December 2017. Still in 81% SWISX + 19% SCHE, or 100% in VEU.

Curious, what was November return in percentage?

[ochotona]

0.6% in November

[Mr Vacuum]

I was backtesting what you are proposing and got some strange results as the optimal allocation based on the backtest was to not use the HBPP at all and just to use the GEM allocation strategy for 100% of your money. I thought about it more and convinced myself that the GEM system generated enough excess returns with little enough added volatility for that to make sense. I took it a step further and I was able to use some of the other successful modifications I have made to the HBPP to enhance the GEM strategy returns further but ultimately I prefer using a REIT as my 5th asset as opposed to International Stocks.

Anyways, the thing that bothered me is that I when I compared my GEM results using the asset class returns I have previously mined to those published on the optimum momentum site and there are some significant discrepancies in recent history and even more the further you go back. As a word of caution I do think the GEM momentum system is a good system, but I am apprehensive about the returns shown on Antonacci's site.

IG

Hmm, that would be troubling. My tests mostly matched Antonacci’s month for month since 1988, but I see differences before that, which I chalk up to evidently backfilling different data for the S&P 500 total returns with my numbers rolled from Shiller. I also don’t have aggregate bonds data and use 5 year Treasuries instead, which affects all the risk off months. And I don’t trust my synthetic Tbills all that much, which affects whether it’s in stocks or not any given month. All in all I didn’t expect an exact match and I didn’t get it But it was enough to test the concepts and see how it works.

Are you seeing discrepancies not explained by any of the above?

I found it surprising and disappointing when Antonacci removed the page that listed what asset GEM was in each month historically. That was there when I built my spreadsheet and it helped a lot to check my logic.

[HappyMan]

0.6% in November

Oddly, SCHF and DBAW resulted in negative 0.69%.

[InsuranceGuy]

[deleted]

[Mr Vacuum]

Gotta wonder what Antonacci used pre-1988.

[Kbg]

Everyone is using total return data sets, yes?

[ochotona]

0.6% in November

VEU was +0.6%

SWISX + SCHE combo was flat

Over short periods of time, these funds don't track perfectly