This strategy is one of two global tactical asset allocation (GTAA) strategies proposed by Blitz and Van Vliet. The other strategy is relative value based. The strategies are based on a broad range of asset classes. This strategy uses past returns of asset classes to rank their price momentum. The first one is termed as 12-1 month (12 months excluding the most recent month) momentum strategy, which uses the past returns from previous 13th. month to previous 2nd. month for each asset used. The second one is termed as one month which simply uses the past one month returns.
The Strategy:
- At the end of every month rank all assets based on their price momentum: for 12-1, use the return from previous 13th. month to previous 2nd. month for each asset used, for one month, use the returns from the previous month.
- Sort the assets based on their returns.
- Choose the top quartile (in our case, 3 funds) to buy for this month.
Funds used in this strategy model portfolio:
There are totally 12 funds used to represent the underlying asset classes.
US Large Equity: Vanguard 500: VFINX
US Midcap Equity: Vanguard Mid Cap Index VIMSX
US Small Cap Equity: Vanguard Small Cap: NAESX
International Equity: Vanguard Total International Index: VGTSX
US REIT: Vanguard REIT: VGSIX
US Investment Grade: Vanguard Investment Grade Bond Fund: VFICX
US Junk Bond: Vanguard High Yield Bond Fund: VWEHX
US Long Treasury: Vanguard Long Treasury Bond Fund: VUSTX
US Short Treasury: Vanguard Short Treasury Index Fund: VFISX
US GNMA Mortgage Back: Vanguard GNMA Fund: VFIIX
International Bond Fund: American Century International Bond Fund: BEGBX since there is no index fund for international bonds.
CASH
- Strategy Goldman Sachs Global Tactical Asset Allocations utilizes similar concept and has been used in large pension and hedge funds of funds.
- Strategy Global Tactical Asset Allocation Value Based is the other Global Tactical Asset Allocation (GTAA) strategies proposed in Blitz and Van Vliet's paper.
- Strategy Global Tactical Asset Allocation Value and Momentum Combination is a hybrid strategy whose portfolio consists of equal amount (50%) in each of the Global Tactical Asset Allocation Value Based and Global Tactical Asset Allocation Momentum .
See Also
- Blitz, David and Van Vliet, Pim, "Global Tactical Cross-Asset Allocation: Applying Value and Momentum Across Asset Classes". Journal of Portfolio Management, May 2008
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