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Worth a new thread!!

I'm not sure this is what Flying Circus had in mind by a new thread, but since Allocate Smartly was mentioned in the last thread (in the context of BCC timing) I thought I'd put in a good word. I have recently become acquainted with the site, and find it very helpful. My entire investing career has been devoted to momentum / trend following strategies that everyone I've described them to thinks are some kind of joke. Allocate Smartly has gotten me thinking about less hair-raising ways to invest.

The board is aimed at people who invest in ETFs. The strategies they follow are entirely rules-based, and in all but a few cases fully and rigorously disclosed. Allocate Smartly does not have a discussion board. As I say, I have found it helpful in terms of risk management, which is definitely something I need to pay more attention to.

You do have to pay for at least a one-month membership to get the full picture.

Baltassar

Thanks Baltassar! So, yeah - Allocate Smartly is a well -curated, statistically rigorous site running backtested ETF-using strategies that implement variants of technical indicators for momentum and value, some of which this community has widely tested or used in the past.

There are several ways to properly MI in '25. Using momentum and fundamental factors at the sub-classification, industry, sector, region or country level to pick ETFs is a modernized way, such as GTAA, Dual Momentum, etc etc.

So Baltassar's initiative is an opportunity to expand this board's lens to include A.S. strategy discussion, as it has been for Portfolio Visualizer, maybe other sites.

FC

Allocate Smartly tests and evaluates "tactical allocation" strategies, and facilitates their application by investors. It does not develop, rate, or rank them.

A useful comment on the underlying principles by which such strategies are meant to operate has been produced by the owner of the web site Financial Mentor. He does not seem to have any formal affiliation with Allocate Smartly, but he clearly thinks highly of it, and has allowed two strategies that he has developed to be presented there (without disclosure of the precise rules by which they operate). There are a few other black box strategies on the site as well, but most are transparent as to the rules by which they work.

At some point he wrote what must be an VERY extensive guide to the whole subject, which I have not seen. But I found one section of it post for free on the web, specifically about Allocate Smartly (from a year or two back, I'd say). It can be found here:

https://www.financialmentor.com/wp-content/uploads...

I found it helpful, probably because he emphasizes some things I also believe:

The basis of a strategy's out-performance has to be recognizable and reasonable.
A lot of allocation strategies spend too much time in cash.
The long bull market in bonds means you need to be careful about pursuing long-term historical optimization.
Timing and allocation decisions should be bright-line choices, not matters of judgment or inference.

Baltassar

Do paid members on Allocate Smartly get access to out-of-sample performance? I tried to poke around and all it shows me is backtested performance.

Do paid members on Allocate Smartly get access to out-of-sample performance? I tried to poke around and all it shows me is backtested performance.

There are occasional references to out-of-sample performance in the commentary posts that discuss the individual strategies when they are first added to the site; but it is not a regular or recurring feature, and in practice not easy to judge. These kinds of strategies have become much more popular since the dot-com crash, the advent of ETFs as trading vehicles, and the growth of tax deferred retail investing in the context of IRAs and 401Ks. The financial crisis of 2008 also showed that static diversification does not provide as much protection as people apparently expected. Hence "tactical," vs static or "strategic," allocation.

The basic principles and the underlying idea have presumably been around forever, but my sense is that a kind of starting gun for retail investors was fire by Mebane Faber in a paper published in 2006

https://www.trendfollowing.com/whitepaper/CMT-Simp...

So the "out of sample" period is liable to be fairly short for many of the strategies discussed.

Allocate Smartly's value added includes rigorous confirmative back-testing of published strategies; but pre- and post-discovery details are not necessarily discussed. The aim is primarily to confirm or undermine claims by the original author of the strategy being studied. One could of course seek out the original strategy, whose publication date would allow one to identify post-discovery results.

The site's backtesting database (which is not publicly visible) seems to go back to 1970. This means that they are sometimes able to backtest strategies further back in time than the original author; but again, details are not generally provided. Depending on the indexes or asset classes involved, backtests may be shorter than that. Many allocation strategies include asset classes for which relevant data is not available further back.

Baltassar

I downloaded and read the paper that was linked: https://www.financialmentor.com/wp-content/uploads...

My reaction was "UGH!" It seems like Allocate Smartly lists 50+ Tactical Asset Allocation strategies and says "Have fun, good luck."

The guy who wrote that financialmentor paper didn't much like any of them it seems. But he did have good discussions about what he saw as the good points & bad points of them.

The executive summary of "this 15,000+ word behemoth of a lesson" is "Heck if I know." Then he brings up "Meta" which appears to be a strategy for dynamically switching between which TAA Strategy(ies) to invest in. AYFKM?

Faced with that, I'd rather just buy the S&P500 and save the $49/month.

Although I guess you could peek under the Allocate Smartly kimono and take as given that all the 50+ strategies have been vetted and just run any of them on your own.

As Baltassar posts above “The basic principles and the underlying idea have presumably been around forever, but my sense is that a kind of starting gun for retail investors was fire by Mebane Faber in a paper published in 2006” and “The financial crisis of 2008 also showed that static diversification does not provide as much protection as people apparently expected. Hence "tactical," vs static or "strategic," allocation”.
Meb Fabers’s original working paper in 2006 presented a strategy of selecting a selection of ETFs

Allocate Smartly started posting the performance of 17 selected strategies in August 2016, each back tested as far back as they had the data at that time. (representing asset classes like US equities, international equities, commodities, US real estate, and 10-year US Treasury bonds) based on whether their prices were above or below their 10-month simple moving average. This was designed to protect investors from significant downturns by shifting out of risky assets when they enter downtrends and moving to a safer asset class like cash. This strategy was posted before the 2008 downturn and one of the few that performed well post discovery. By 2012 a number of individuals were posting their improved versions of TAA. A number of tools for building and backtesting like Michael Kapler’s Systematic Investor Toolbox for R: SIT which included tools for making synthetic ETF. As ETFs did not historically exist as far back as one would like to evaluate a strategy a synthetic ETF was designed mimic the performance of an existing ETF using similar historical components.
Composing Synthetic Prices For Extended Historical ETF Data TrendXplorer: https://indexswingtrader.blogspot.com/2014/05/comp...
One of the earliest free colliections of TAA stratigy signals that still exists today was index swing trader’s Signals: TrendXplorer: https://indexswingtrader.blogspot.com/p/strategy-s...

Then along came Allocate Smartly to gather the best of these into a commercial site with more capability.

The first Allocate Smartly strategies in 2016 were:
Traditional Dual Momentum
Varadi’s Minimum Correlation Portfolio
Davis’ Three Way Model
60/40 Benchmark
Glenn’s Paired Switching Strategy
Browne’s Permanent Portfolio
Faber’s Global Tactical Asset Alloc. 13
Gray’s Robust Asset Allocation - Aggressive
Dalio’s All-Weather Portfolio
Gray’s Robust Asset Allocation - Balanced
Faber’s Ivy Portfolio
Protective Asset Allocation
Elastic Asset Allocation - Defensive
Flexible Asset Allocation
Elastic Asset Allocation - Offensive
Faber’s Global Tactical Asset Alloc. 5
Faber’s Sector Relative Strength

They continually update the performance of each of the strategies monthly.
From that time on every few months they have added another strategy. I believe it is somewhere near 90 now.
So, if I understand your question for each strategy if you can see both the pre discovery and the post discovery performance. You can also select any period and zoom in to see the performance relative to a 60/40 benchmark over that period.
They have several tools that allow you to screen strategies for different characteristics, compare strategies, see risk vs return scatter plots, look at the historical safe withdrawal rates over different retirement periods.
And the one I like best, it will optimize a combination of 3, 5 or 10 strategies that historically would have optimized your goal i.e. (10 selections like max Sharpe or Sortino Ratio, Ulcer Performance Index, . . . )

“This tool is designed to help members create the optimal mix of strategies for their Model Portfolios based on common portfolio optimization techniques, such as maximizing the Sharpe Ratio or minimizing volatility. There are many factors that may be important to a member that this tool does not consider, so these results should only be viewed as a starting point in designing your portfolio.”

If you subscribe and choose a strategy or a blend of strategies and the day of the month you want to trade they will send you an email telling you what the change in your allocations are.

rayvt pointed out that “you could peek under the Allocate Smartly kimono and take as given that all the 50+ strategies have been vetted and just run any of them on your own”.

With the help of Robbie I posted my modified version of Keuning and Keller's Generalized Protective Momentum which I called Generalized Protective Asset Allocation Fuzzy for several years.
https://www.shrewdm.com/MB?pid=114153989

Compared to Vanguard’s VWELX balanced fund from 10/2007

	GPMF	VWELX
CAGR:	10.1	7.5
MDD	-15.1	-36.0

I used this for part of my investing until I discovered Allocate Smartly had a better system with less effort and they are continually improving it.

Some additional observations prompted by Ramc's excellent comments:

Allocate Smartly is aware of the confounding effect of the long bull market in bonds. They identify strategies that are particularly sensitive to interest rates, which in such circumstances are likely to produce better historical they they will going forward from today. In addition to calling out the risk, they offer what they call "dynamic bond" variants of strategies that rely exclusively on intermediate treasuries as a risk-off asset.

They are also aware that backtests that seek to optimize over a long historical period incorporate a crystal ball effect, by which choices that matter to the early part of the period are shaped by conditions at the end. They have attempted to minimize this by developing what they call "meta" strategies: combinations of allocation strategies that are re-constructed year by year, using only data that would have been available at the time.

Finally, while their standardized report of results use trades on the last day of each month -- a necessity given how common that practice is in academic and other research -- they provide backtested results for every day of the month, to expose the variance this introduces. It is thus possible, with a little work, to identify the best, worst, and median trading days for any strategy, in order to get a more granular view of its results.

Baltassar

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