Strategy 4 Explained

The strategy is based on two principles:

1. Asset classes that show the greatest momentum over 3 to 12 months tend to outperform asset classes that exhibit less momentum. This anomaly has been documented in several research papers.
2. Prices tend to move in trends. and investing in asset classes that are in uptrends vs. those that are falling will, over the long term, perform about the same as buy in hold but with a lot less volatility. Refer to Mebane Faber's Quantitative Approach to Tactical Asset Allocation.

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

The model is based on a simple point system.

• The top 4 performing asset classes over the past 90 days each get a point.
• The top 4 performing asset classes over the past 180 days each get a point.
• The top 4 performing asset classes over the past year each gets a point.
• Every asset class that is above it's TRIX (15,9) signal line gets a point.
• Every asset class that is above it's 75 day moving average gets a point.
• Every asset class that is above it's 200 day moving average gets a point.

The portfolio always holds 5 positions with an allocation of 20% per position. Money Markets are always one of those positions, so the portfolio is always 80% long.

The 4 asset classes in the model with the highest point totals are included in the portfolio. In case of a tie, asset classes with the best momentum scores win. If there's still a tie, I'll defer to the asset classes in uptrends, from short term to long term.

That's it. If you still have questions, feel free to leave a question.