Strategy 3 Explained

This strategy is a variation of Mebane Faber's Quantitative Approach to Tactical Asset Allocation.

Like strategy 4, I start with a universe of 12 asset classes (I include money markets as an asset class):

1. Money Markets
2. Industrial Materials
3. U.S. REITs
4. International Real Estate
5. U.S. Small Caps
6. U.S. Large Cap
7. Emerging Markets
8. EAFE
9. Precious Metals
10. U.S. Long Bonds
11. Energy
12. Agriculture

Every asset class that is above it's 200 day moving average earns a position in the portfolio. Money Markets is alway considered to be above it's 200 day moving average.

Position size is determined by the number of asset classes that are above their 200 day moving average. For example, if all 12 asset classes are above their 200 dma, the position size for each is 8.3%. If no asset classes (except money markets) is above their 200 day moving average, the portfolio will be 100% in cash (money markets).

The portfolio should be adjusted on a weekly basis, which from an execution standpoint, is quite difficult. Currently I do not use this strategy.

Keep in mind both Strategy 3 and strategy 4 only makes sense in tax deferred accounts like IRAs or a 401K plan that provides a brokerage option.