As of the end of January / beginning of February, my Tactical Asset Allocation (TAA) model has shifted more heavily into equities, specifically domestic equities.  Looking at the sector rankings for this month, you can really see the performance shift.  Now, I will remind you that this model is not for day-trading, it is for long-term holdings.  The goal is to get the middle 80% of multi-month and longer trends.  When the market happens to fluctuate around the moving average, there can be whipsaws.  However, the idea behind trend following is you’re never sure which break will be the one that rolls for a long time.

Additionally, by weighting the holdings of better performing assets more highly, we hope to exploit the momentum and see continued better than market performance out of those same asset classes.  If you’re interested in a mean-reversion strategy, one that invests in the worst performing asset classes, you’ll need to look elsewhere.  However, my model does consider that as I specifically included several “value” focused ETFs, so if they are performing well, I’ll still have exposure.  Listed below are the asset class performance rankings:

Tactical Asset Allocation - TAA portfolio holdings

Asset class rankings

As you can see, Domestic Small Caps have taken the top spot, followed by Domestic Sectors (various industries and sectors within the US market, see below for the specifics) and Domestic Large Caps.  Foreign equities are still on the bottom of the allocation, but are both owned as they are above their moving average signal line.  For completeness, the asset class rankings are currently using an equal weighting of the 3, 6, and 12 month returns.  When the markets get particularly volatile, I may remove the shortest timeframe to help eliminate the noise that comes from the average changing direction and magnitude too quickly.

I know it sounds odd, but performance of these type of trend-following systems actually improve in volatile markets when you take a longer-term approach, which is counter-intuitive to what you would think you should do, trying to act even quicker.  Just take your time, as they say, opportunities are made up far easier than loses.  The specific holdings for my February portfolio are:

TAA specific asset holdings for February

Specific holding for February

VB gets a 10% total portfolio weighting, and the Domestic sectors are fairly defensive with holdings of Bio-Technology, Healthcare, and Consumer Discretionary.

Personally, I feel the market is a bit over-bought here, and some of my cycle work suggests we are due for a pullback, but I’ve also learned that I need to trust the system, and simply follow the signals.  Best of luck to you in the upcoming investment month.  I’ll also post the results of this month’s holdings at the end of the month compared to the S&P 500 which I use for my benchmark.


Readers, how have your portfolios changed recently?  Are you adding, holding, or reducing exposure to equities?  Foreign or Domestic?


About Karl

has written 56 articles on this site..

Tagged with →  

6 Responses to Portfolio update – tactical asset allocation shifts to domestic equities

  1. I have a large allocation for VB as well.
    I have a bit more than you invested in VWO and foreign developed stocks. The emerging market is doing very this past month. Do you think you are missing out on that gain? Of course, I rode VWO down last year too.

    blogging tip – You probably should break the big paragraph into smaller paragraphs. It’ll be a bit easier to read online.

    • admin says:

      Thanks RB40. I was in a hurry this morning and the post didn’t go up as scheduled and I had to get it up on my phone.

      I’m OK with missing portions of moves, because I know that if it is really a sustained move, it will eventually bubble to the top of my rotational relative strength. The research tells me that especially in the 6, 9, and 12 month relative strength zones, those topping that list will continue to do well, whereas if it is only a short term pop, maybe it is the best performing asset for the last month or something shorter, there is a tendency for mean revision.

  2. I also think market is overbought. There will be a correction coming soon. I would wait to buy for those who are considering buying right now.

  3. YFS says:

    Since I have 40 years before I need the money I am heavily invested in equities. to answer your question I’ve added more exposure to equities and I’m riding it out until I get a bit closer to needing the money

  4. FastSwings says:

    Stock Carnival Ecstasy – February 9, 2012…

    Joachim Alpen (Photo credit: SEBgroup) Welcome to the February 9, 2012 edition of Stock Carnival Ecstasy. In this edition we have Alexander Collins considering weather the EURO is doomed to c……

Leave a Reply

Your email address will not be published. Required fields are marked *