Martin, thanks for the kind words! To give credit where it is due, I saved that adaptive allocation strategy years ago from another Seeking Alpha commenter -- I believe he used to post as "SamHain" -- so thanks to that person for sharing a strategy that has held up well over the years.
The "Risk Parity, with Small Cap Value and Gold" you and Joachim came up with is very interesting. I think you were too modest when you wrote "I suspect this strategy wouldn’t have saved anybody’s neck in 2000-2002." Following your link and scrolling down to annual returns, the returns appear to be between about 7 and 10 percent for each of those years.
Many trend following strategies will struggle when markets are subject to quick reversals, like around the tariff "Liberation Day." I suspect the signals used in the Pacer Trendpilot series of ETFs are reasonable ones, but both their US Large Cap fund and fund-of-funds have lost money year-to-date: https://stockcharts.com/freecharts/perf.php?SPY,IEF,PTLC,TRND&p=4&O=011000
So in times like these I appreciate strategies that incorporate volatility into allocation decisions, like your risk parity or the adaptive allocation strategy. Incorporating some measure of valuations or expected returns is another bonus. One new fund which considers both volatility and expected returns is the ELM Market Navigator ETF, ELM: https://www.elmfunds.com/elm-market-navigator-etf
You can scroll down on the page to view the holdings, and right now it's completely out of US equities and has over half in TIPs, T-bills and bonds. It uses a 75% total world stock index / 25% total bond index as a benchmark, and so far the active allocation decisions have reduced volatility and it looks like it's outperforming the benchmark (though total return is still slightly negative: https://stockcharts.com/freecharts/perf.php?SPY,IEF,ACWI,ELM).
thank you, GC! I have to look up that Sam Hain guy.
The ELM ETF looks good! I'll put it on my watch list. Generally, I prefer to let a new fund spread its wings for a few years before I seriously consider investing; how about you?
I agree 100% that using momentum is difficult, nearly impossible, in a market environment similar to the one we've had this year. It seems most of the strategies I describe were not able to anticipate the tentative end of the Tariff Troubles. And none identified the new Trump Tariff Fold / Bessent Put / Fed Put.
(As to the new Fed Put, how far does this go? If Trump has a Liz Truss moment in a few weeks, will the cavalry come galloping in?)
What I don't understand is whether all this means that Momentum is dead at least until the mid-terms. Is this 2018, or will the stock market continue to trade off of mood swings?
Even risk parity looks into the rear-view mirror, and assumes volatility has momentum, if I understand it correctly.
Thank you, Martin, for another timely and excellent article.
I wonder if normal strategies are completely applicable in a situation that was created and is solely dependent upon the whims of the creator. Personally, I began scaling into SPY (with small amounts) last week. One worry is the big slowdown of containers arriving at the Port of Los Angeles.
thank you, Vance! I really appreciate your continued support.
To be honest, the situation reminds me a bit of February 2020. Everybody had a "what, me worry?" attitude, until they didn't. Discontinued supply chains are poison for the economy. In contrast to 2020 however, there is no bazooka waiting to be fired by the Fed. Very odd feeling, especially considering I'm normally a "follow the tape, everything else is just talk" guy.
Martin, these are a great smorgasbord of indicators. And it's wonderful that you bring them out and offer them at a point of uncertainty and inflection.
Also, thanks for the Klement link. I do subscribe to him, but I missed that one.
Martin, thanks for the kind words! To give credit where it is due, I saved that adaptive allocation strategy years ago from another Seeking Alpha commenter -- I believe he used to post as "SamHain" -- so thanks to that person for sharing a strategy that has held up well over the years.
The "Risk Parity, with Small Cap Value and Gold" you and Joachim came up with is very interesting. I think you were too modest when you wrote "I suspect this strategy wouldn’t have saved anybody’s neck in 2000-2002." Following your link and scrolling down to annual returns, the returns appear to be between about 7 and 10 percent for each of those years.
Many trend following strategies will struggle when markets are subject to quick reversals, like around the tariff "Liberation Day." I suspect the signals used in the Pacer Trendpilot series of ETFs are reasonable ones, but both their US Large Cap fund and fund-of-funds have lost money year-to-date: https://stockcharts.com/freecharts/perf.php?SPY,IEF,PTLC,TRND&p=4&O=011000
So in times like these I appreciate strategies that incorporate volatility into allocation decisions, like your risk parity or the adaptive allocation strategy. Incorporating some measure of valuations or expected returns is another bonus. One new fund which considers both volatility and expected returns is the ELM Market Navigator ETF, ELM: https://www.elmfunds.com/elm-market-navigator-etf
You can scroll down on the page to view the holdings, and right now it's completely out of US equities and has over half in TIPs, T-bills and bonds. It uses a 75% total world stock index / 25% total bond index as a benchmark, and so far the active allocation decisions have reduced volatility and it looks like it's outperforming the benchmark (though total return is still slightly negative: https://stockcharts.com/freecharts/perf.php?SPY,IEF,ACWI,ELM).
thank you, GC! I have to look up that Sam Hain guy.
The ELM ETF looks good! I'll put it on my watch list. Generally, I prefer to let a new fund spread its wings for a few years before I seriously consider investing; how about you?
I agree 100% that using momentum is difficult, nearly impossible, in a market environment similar to the one we've had this year. It seems most of the strategies I describe were not able to anticipate the tentative end of the Tariff Troubles. And none identified the new Trump Tariff Fold / Bessent Put / Fed Put.
(As to the new Fed Put, how far does this go? If Trump has a Liz Truss moment in a few weeks, will the cavalry come galloping in?)
What I don't understand is whether all this means that Momentum is dead at least until the mid-terms. Is this 2018, or will the stock market continue to trade off of mood swings?
Even risk parity looks into the rear-view mirror, and assumes volatility has momentum, if I understand it correctly.
Thank you, Martin, for another timely and excellent article.
I wonder if normal strategies are completely applicable in a situation that was created and is solely dependent upon the whims of the creator. Personally, I began scaling into SPY (with small amounts) last week. One worry is the big slowdown of containers arriving at the Port of Los Angeles.
thank you, Vance! I really appreciate your continued support.
To be honest, the situation reminds me a bit of February 2020. Everybody had a "what, me worry?" attitude, until they didn't. Discontinued supply chains are poison for the economy. In contrast to 2020 however, there is no bazooka waiting to be fired by the Fed. Very odd feeling, especially considering I'm normally a "follow the tape, everything else is just talk" guy.
Martin, these are a great smorgasbord of indicators. And it's wonderful that you bring them out and offer them at a point of uncertainty and inflection.
Also, thanks for the Klement link. I do subscribe to him, but I missed that one.
thanks for your kind words Mr. D., once again!
Thanks, Martin. Very inspirational. I curve-fit the Bitcoin-signalled strategy here https://www.portfoliovisualizer.com/tactical-asset-allocation-model?s=y&sl=4pl6WCZHSRyCRzMe6AKJtl
very good! All we need now is for gold to be the best OOM asset going forward. Thanks very much for the kind words!
As an alternative to cash if USD is dropping.