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Systematic Tactical Asset Allocation

Our systematic tactical asset allocation strategy is based on a proprietary algorithm that adjusts the exposure to stocks, bonds, gold, and commodities. Based on timing signals, the algorithm determines the proper mix of assets to maximize the Sharpe ratio while volatility remains low. This is a beta strategy, but it has the potential to generate high risk-adjusted returns and leveraged alpha.

The strategy generates signals for four popular ETFs and rebalances them monthly at the start of the month if the asset mix changes.

Rebalance date: July 1, 2022, on market open

Below is the current allocation. Unlocking the protected content requires Market Signals or All in One premium subscriptions.

Year-to-date performance (01/03/2022 – 06/30/2022)

Return: -4.2%
Drawdown: -5.4%

S&P 500 year-to-date return: -20.6%

2021 Performance (Unleveraged)

Return: +13.6%
Drawdown: -3.3%

Strategy Historical Performance Based on Backtests

Case 1. Using indexes closely tracked by the ETFs. No leverage. 01/03/1995 – 12/31/2021.

CAGR for the strategy is 8.3% vs. 11.1% for SPY passive buy and hold. Maximum drawdown and volatility for the strategy are -8.8% and 7.1% vs. -55.2% and 19.2%  for SPY passive buy and hold, respectively. Sharpe for the strategy is 1.17 vs. 0.58 for buy and hold. This is a beta strategy with superior risk-adjusted returns as compared to buy and hold.

Case 2. Using indexes closely tracked by the ETFs. 2X leverage. 01/03/1995 – 12/31/2021.

CAGR for the strategy is 14.4% vs. 10.6% for SPY passive buy and hold. Maximum drawdown and volatility for the strategy are -15.2% and 12.9% vs. -55.2% and 20.2%  for SPY passive buy and hold, respectively. Sharpe for the strategy is 1.12 vs. 0.57 for buy and hold. Note that Sharpe is not affected much by leverage at least in theory.

Case 3. Using ETFs closely tracking the indexes. No leverage. 01/03/2007 – 12/31/2021.

Performance with no leverage is as follows: CAGR for the strategy is 7.6% vs. 10.6% for SPY passive buy and hold. Maximum drawdown and volatility for the strategy are -8.5% and 7% vs. -55.2% and 20.2%  for SPY passive buy and hold, respectively. Sharpe for the strategy is 1.10 vs. 0.52 for buy and hold.


Specific disclaimer: The risks of investing in equities, or equity derivatives, include the total loss of capital. At times, we may hold positions, long or short, calls or puts, in several ETFs listed in these reports.

Disclaimer: The systematic tactical asset allocation signals (Signals) are provided for informational purposes only and do not constitute investment advice. We do not warrant the accuracy, completeness, fitness, or timeliness for any particular purposes of the Signals. Under no circumstances should the Signals be treated as financial advice. The author of this website is not a registered financial adviser. Before subscribing, please read our Disclaimer and Terms and Conditions.

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