Mechanical investing using GTAA and ETFs

11th Apr '15 by schober

5 comments 12156 reads

I haven't a clue where the stock market's going let alone bonds and gold!

So, I was quite intrigued when I came across this in the IC ............. The power of passive 20feb2015 http://tinyurl.com/qa858lx and had a look at his site http://anthonyfjgarner.net/

I came away suitably impressed and decided to have a go, writing a "simple" programme in python to evaluate the strategy. I used with a universe of 3 etfs and a portfolio of 2 stocks. The results can be seen here https://sites.google.com/site/merisig1/home/passive

I found mr garner was a bit vague about rebalancing - perhaps deliberately? Has anyone else had a go at this sort of thing?

Some info http://en.wikipedia.org/wiki/Tactical_asset_allocation
http://en.wikipedia.org/wiki/Global_tactical_asset_allocation
Gld%20tlt%20spy.png width =

Unlock with Email

Unlock with Google

Already have an account?
Login here

About the Author

Schober

Premium Member

5 comments

Anthony FJ Garner

11th Apr '15

Really not at all keen on taking too much notice of back tests on such tiny portfolios hence my criticisms of Antonacci, Meb Faber et al and my tests on random portfolios on a sample size of 23,000 mutual funds. Vagueness on rebalancing......hmm......simple enough on TAA I and Stocks I - simply reduce profitable positions to N/10 or n/100 or whatever but you are right: TAA II and Stocks II are more intricate. And yes, I didn't feel like spelling it all out in public. Too many years of giving out a great deal of thought and research for zero return!

Anthony FJ Garner

11th Apr '15

Incidentally, indices=systems. Whether its the S&P 500 or something like the "systems" I produce on my website. If you want more, look at some of the articles on "Smart Beta" here and there. Indices = systematic trading and indices are usually fully disclosed. Eventually I might stop grumbling and print out a full methodology document on my website. Been a bit grouchy recently!

mpat89

18th Apr '15

This is all very interesting. Currently I am leaning towards moving to this kind of approach.

My current focus is on equity vs bonds, using momentum to protect yourself from bear markets. There are a few questions.

- FX Risk: if we are comparing FTSE 250 to S&P 500 (GBP listed fund), then momentum will also incorporate changes in the FX market. Do we take any measures to mitigate FX risk, or should we remain happy to take on FX risk, so long as our momentum indicators prefer a GBP listed version of the S&P against FTSE 250? Same goes for bonds... i.e. Treasury vs Gilts. iShares ETF's make it very easy to take on positions tracking foreign indices by providing GBP listings of their funds.

- Momentum: "Four look-back periods are used: 252, 125, 60 and 20 trading days. " IS this based on research or is it arbitrary?

- If I want to further my knowledge in this area and do my own research, what is the best way to get started? 8 years ago I learnt Visual Basic, so now I am planning to re-learn it. This will help me manipulate data. What else can I do? Schober - would you be willing to share your code & collaborate?

schober

18th Apr '15

Thanks for the comments Anthony; hope your cold is better. Looking at taa1, you say that you use equal weighting. Do you mean at the start of each month or when the portfolio is initially setup?

As we are in times of negative real interest rates, I want to reduce my cash levels and move more into other assets. Whilst I have a number of shares I would like to diversify away from them due to their inherent volatility. One way is to look at other asset classses and not just uk ones. The exercise which gave the above graph was a) to look at the feasability of a diy approach and to see what a minimalist portfolio with the least no of rules would do. (it ignores costs and dividends and is in $; also the etfs are not uk reporting) The exercise was worth while and asecond protfolio divised using 4 asset classes SPY TLT GLD and cash. ( see https://sites.google.com/site/merisig1/home/passive for results and rules). The momentum rules were also changed and are similar to the ones in the IC article. The perfomance was significantly improved (cagr 8.5%) but the 2008/9 decline (24%) increased (spy 52%). Perhaps Heisenberg's uncertainty princple is somewhere in the background?

Thanks for the interest mpat. Where to start? decide your objectives and write the code - thats what i did!
Learn VB? I wouldnt - its a proprietary language, quite "dated" and can only be used on microsoft os's ( I use linux). There are better alternatives available. I use Python though there may be more suitable languages out there

Anthony FJ Garner

19th Apr '15

Equal weighting: rebalanced at the start of each month....BUT: do you want to increase losers as well as decrease winners?

Uncertainty Principle. Agreed entirely.

Python: agreed and also especially see zipline/Quantopian. Written in Python, open source, downloadable.

FX. IMHO better to ascertain momentum in local prices and take the FX hit or gain as it arises. I don't believe in hedging either. See Uncertainty Principle above.

Lookback periods. Neither: its good old common sense. A long term momentum indicator right doen to a short term one. Again, ref the Uncertainty Principal.

Consider the nature and existence/non existence of randomness, the existence or otherwise of pure scientific determinism, chaos theory. Result: we do not know any of the answers. Yet. So, back to uncertainty.

Unlock the metrics for all these stocks and more...

Take a free trial

Facebook Twitter Youtube Instagram RSS

This site cannot substitute for professional investment advice or independent factual verification. To use it, you must accept our Terms of Use, Privacy and Disclaimer policies.

Unlock the metrics for all these stocks and more...

Take a free trial

Mechanical investing using GTAA and ETFs

Unlock the rest of this article with a 14 day trial

About the Author

Schober

5 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...