Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

For regular SAA and TAA portfolios, the next re-balance will be on next Monday, March 9, 2015. You can also find the re-balance calendar for 2014 on ‘Dashboard‘ page once you log in.

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Please note that we now list the next re-balance date on every portfolio page.

Why Is Global Tactical Asset Allocation Not Popular?

We regularly receive many questions from our users. Some of them are very pointed and concerned about our core methodology. The following question came from a user a couple of weeks ago:

I have a couple general questions for you about the thought/strategy (and results) behind one of the advanced portfolios, namely [P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds] using mutual funds, not the ETF one.

You may not know the answer, but I thought I’d ask — and these are not urgent questions, I’m just curious as to your thoughts on it.

Why isn’t this strategy, the GS GTAA one mentioned above, known and followed all over the place — by investment advisors, retail and institutional investors at large (outside of myplaniq), and so on? Or maybe it is. But I’m guilty of having read many (too many) investment newsletters, books, and articles over the years — and yet I never heard of this strategy anywhere else except through your site. It seems so simple (in terms of algorithms) and steady (in terms of decent results with small drawdown). It’s in contrast to the Mebane Faber type of TAA; I’d heard about the Farber type approach before, but that approach’s sharpe ratios aren’t nearly as good as the GS GTAA one on your site. 

Basically, the GS GTAA results seem almost too good, compared to everything else–yet the results are easy enough to track, at least through your site, and plain to see. Also, as it uses regular mutual funds (with once-a-day prices) and a monthly rebalance frequency, I have more confidence in backtest results for this strategy, since there is less a chance of losing out due to intraday pricing fluctuation or other friction if you did it for real over the years.

Given the results of this are so strong (in terms of annual return, sharpe ratio, and draw down), and yet are realistic  — I’m just wondering why it is not a more widely known/talked about/followed approach. It’s one of those things that I wish I’d heard about, and started doing, years ago. 

Thanks in advance for your thoughts on this, if you have time.

The portfolio the user referred to is P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds, Since we received the email, we have pondered how to best answer this question. Recent market actions and the portfolio behavior might provide a good reason to answer the question. 

To put it under context, the portfolio was doing very well at the time when the question was asked. It had 5-6% YTD (Year To Date) return. However, recent US stock strength and the weakness in REITs and long term bonds have dented its performance. Tts ETF cousin is even worse: as of today, it had only 0.3% YTD return, compared with 2.8% of S&P 500 (VFINX)

Portfolio Performance Comparison (as of 2/23/2015):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds ETFs 0.3% 10.0% 11.0% 9.8% 0.8    
P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds 2.8% 15.1% 12.5% 12.7% 1.08 14.2% 1.03
VFINX (Vanguard 500 Index Investor) 2.8% 17.1% 18.1% 16.0% 1 7.8% 0.34
VUSTX (Vanguard Long-Term Treasury Inv) 0.4% 20.4% 5.3% 9.7% 0.73 7.2% 0.52
VGSIX (Vanguard REIT Index Inv) 4.4% 26.1% 15.0% 18.0% 0.86 9.3% 0.23

Three month total return chart: 

See year by year detailed comparison >>

This portfolio drew quite some attention earlier this year because of discussions and endorsement from some of our active users. However, we guess these new users are probably suffering from some pain now as the portfolio (especially the ETF one) hadn’t done well. 

That is probably one of the best reasons why such a portfolio is not necessarily the most well known and popular as it does not match with most popular market indices such as S&P 500 stock index which has risen relentlessly for several years. 

Under performance in extended periods 

Well, actually, the portfolio has lagged from S&P 500 (VFINX) every year other than 2011 since 2009: 

When one looks at this chart, he/she might not really appreciate the pain of the under performance. Numerically, it does not cause much concern. Many would claim that they definitely prefer GS TAA portfolios over the S&P 500 (representing a buy and hold portfolio) by looking at this chart. 

However, if you are one of investors who have followed this portfolio since 2009, you will have a very different feeling. In fact, if you are one of the most recent users who started to follow this portfolio, you will also agree with us: the under performance is a pain. 

Five years is a long time for a person. 

So if you are not already one of users who are following or have followed this portfolio, take a moment to visualize/simulate through the past five years, see how much more money you could have made if you would have followed S&P 500 instead of following the GS TAA portfolios: in the last 5 years, the ETF portfolio made 6.2% less than S&P 500 while the mutual fund portfolio made 3.3% less. 

This is also true for our users who have been following Tactical Asset Allocation(TAA) based portfolios. 

It is thus possible for many users to give up in this 5 year period. We discussed some of these behaviors or psychological reactions in our previous newsletter March 11, 2013: How To Evaluate Investing Strategies (or July 23, 2012: The Difference Between Investment Loss & Investment Mistakes)

Institutional mandate or unnecessary tweaking or risk taking

The above only partially answered the user’s question: the under performance in an extended period will cause many users to abandon the portfolios in question. However, many of these users are individual investors. What about institutional investors. They are supposed to be more experienced and have a longer term horizon. 

It turns out that for many institutional investors, they have even greater pressure to give up such a portfolio. The main reason: short term performance pressure. 

It is actually hard to imagine why many tactical fund managers do not utilize such a ‘simple’ strategy if it does show such promising potential. However, time and again, we have seen many such tactical funds behaved strangely, totally deviating from their originally stated strategies. 


Let’s imagine for a moment you are a fund manager who just starts a fund using GS TAA or similar strategies. Once the fund comes to life, it starts to under perform the benchmark index (say S&P 500). You are now under constant pressure from your marketing and sales people (or yourself) to ‘beat’ the benchmark, a simple but most obvious way to attract investors’ money. Many such funds will not survive for a year or two if under performance continues. So you will take a risk, tweak (or ‘improve’) the strategy, hoping to make a short term bet that can turn around the fund’s performance. Such survival pressure can turn a fund manager to a gambler: what happens if the short term bet turns sour? The manager will try even bigger bet to make it up and so on. 

The other reason: institutional investors tend to present their strategies as more sophisticated to justify their values to charge high fees (or just their brilliance?). 

No wonder Warren Buffett said “There seems to be some perverse human characteristic that likes to make easy things difficult. ” He was referring to investors who don’t believe in or can’t stick to the intuitive and ‘simple’ value investing strategy. This is actually true for momentum based tactical strategies too. 

We had a discussion on tactical funds in February 9, 2015: How Have Asset Allocation Funds Done?

Momentum has a bad rap

Chasing hot stocks is perhaps one of the oldest ‘original sins’ investors have had since there was a stock market. Such a behavior is evidently associated with momentum based strategies. 

We have tried to differentiate a random hot stock chasing from a systematic momentum based stock investing strategy. Furthermore, we have also tried to differentiate a multiple major asset classes based momentum or trend following strategy from a stock momentum strategy. See 

However, it is still hard for investors to shake off the ‘reckless’ notion associated with a momentum strategy. 

Historical background

Finally, let’s try to answer the part of the question: if the strategy is that good, why it hasn’t been used widely from a historical perspective. 

The first interesting fact is that for momentum based individual stock investing, Ken French and Eugene Fama have maintained a momentum (MOM) factor study for more than twenty years (or see Research Affiliates’ Jason Hsu’s data or publication). Even though the momentum factor has been proven to be one of the four main factors (the other three are markets, size and value) in stock price anomalies (that investors can utilize to out perform an index), momentum based individual stock investing hasn’t been present in main stream mutual funds until several years ago. Every now and then, there were some funds that came to markets (such as old Hennessy funds), but quickly they disappeared. We will see whether the new generation of momentum based funds like AMOMX (AQR Momentum L) or DWTFX (Arrow DWA Tactical A) can make a meaningful difference in the coming years. 

Same can be said for multiple asset class (or so called cross asset) trend following strategy like MyPlanIQ’s GS TAA. These strategies existed more than 10 years ago but they only became popular in the recent years. Two reasons here: 

  1. It was not easy or not possible for non sophisticated investors (including many institutional investors too) to get access to major asset classes such as emerging market stocks or REITs 10 years ago. Global electronic financial markets and recent invent of ETFs and many index funds only started to proliferate in recent years. 
  2. Before 2000, US stocks have been in a super bull market and there wasn’t much a need for such a product or strategy (same thing can be said since 2009, isn’t it?).  

To summarize, a possible extended period of under performance, institutional managers’ inappropriate implementation and the only recent advancement of index ETFs and mutual funds have all contributed to the possible ‘unpopularity’ of our tactical strategies. However, for people who are convinced and committed to follow such a strategy, such an unpopularity is a good edge to have (see also August 18, 2014: Consistency, The Most Important Edge In Investing: Tactical Case or May 19, 2014: Consistency, The Most Important Edge In Investing: Strategic Case).

Portfolio Review

We mentioned the time diversification concept in March 24, 2014: Time Diversification In Portfolio Rebalance. Let’s look at how these portfolios did last year: 

Portfolio Performance Comparison (as of 2/23/2015):

Ticker/Portfolio Name 2014 Return 1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
P GS 2 Week 0 10.5% 14.7% 14.9% 11.6% 14.1% 0.87
P GS 2 Week 1 4.5% 8.5% 12.8% 11.1% 12.4% 0.72
P GS 2 Week 2 4.8% 8.8% 11.8% 12.3% 13.2% 0.76
P GS 2 Week 3 11.8% 16.1% 16.4% 12.9% 15.5% 0.93
P GS 2 TimeDiversify 7.7% 12.1% 13.5% 11.7% 13.9% 0.85
VFINX (Vanguard 500 Index Investor) 13.5% 17.1% 18.1% 16.0% 7.8% 0.34

year by year detailed comparison >>

Apparently, the performance dispersion in 2014 was very large and the time diversification can smooth out the performance fluctuation. One can see from last year’s performance. Furthermore, it is not always true that week 0 or week 3 portfolios out performed others every year. For example, in 2009, the week 0 portfolio had only 13.1% return, compared with 18.2% and 32.4% return of week 1 and week 2 respectively. 

Market Overview

US stocks again reached record territory last week. Emerging market stocks again slid. The temporary extension of Greek debt bailout plan somewhat boosted investors’ confidence. Long term bonds continued to drop. However, given the elevated overbought level, we are again cautiously optimistic. 

For more detailed asset trend scores, please refer to 360° Market Overview.

We would like to remind our readers that markets are more precarious now than other times in the last 5 years. It is a good time and imperative to adjust to a risk level you are comfortable with right now.  However, recognizing our deficiency to predict the markets, we will stay on course. 

We again copy our position statements (from previous newsletters): 

Our position has not changed: We still maintain our cautious attitude to the recent stock market strength. Again, we have not seen any meaningful or substantial structural change in the U.S., European and emerging market economies. However, we will let markets sort this out and will try to take advantage over its irrational behavior if it is possible. 

We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot. 

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