Here is another generative thing I have been working on lately
Sunday, April 22, 2012
Friday, April 13, 2012
Mebane Faber Tactical Asset Allocation in R
In 2006 Mebane Faber published a great piece of research detailing an asset allocation system that was both very easy to understand and implement, as well as carrying very respectable risk adjusted returns.
The details are available in his paper A Quantitative Approach to Tactical Asset Allocation and were further expanded on in his book The Ivy Portfolio both of which are must reads.
The short version is to use diversified asset classes, long only, and only long when the price is above the 10 month simple moving average (approx 200 day). The assets he tests are U.S. Stocks, International Stocks, U.S. Government Bonds, Commodities and Real Estate, accessible via ETFs.
A rotational extension can also be added by investing only in the top 1-3 asset classes showing some degree of relative strength, which is defined as the average of 3, 6 and 12 month returns. They must also be over the 10 month SMA to be candidates.
The system updates monthly at the end of the month, it is about as hands off as you can get for active management.
There is an ETF for those so inclined, GTAA, but I am experimenting with a put selling implementation, which I might start tracking here month to month. I wrote a small R script using quantmod to display the relevant information for given symbols, which should be available here: Tactical Asset Allocation R script
The output looks like this:
Sym R3m R6m R12m Close AvgRet OverMA
4 VNQ 0.09295631 0.22412597 0.08488552 63.65 0.13398927 TRUE
1 VTI 0.11671109 0.22466699 0.05037598 72.26 0.13058469 TRUE
2 VEU 0.10908623 0.13282091 -0.10915250 44.22 0.04425155 TRUE
5 DBC 0.07048208 0.11194076 -0.05767911 28.80 0.04158124 TRUE
3 IEF -0.02193049 -0.01718305 0.10473673 103.28 0.02187440 TRUE
Let me know if you have any comments or find any bugs.
The details are available in his paper A Quantitative Approach to Tactical Asset Allocation and were further expanded on in his book The Ivy Portfolio both of which are must reads.
The short version is to use diversified asset classes, long only, and only long when the price is above the 10 month simple moving average (approx 200 day). The assets he tests are U.S. Stocks, International Stocks, U.S. Government Bonds, Commodities and Real Estate, accessible via ETFs.
A rotational extension can also be added by investing only in the top 1-3 asset classes showing some degree of relative strength, which is defined as the average of 3, 6 and 12 month returns. They must also be over the 10 month SMA to be candidates.
The system updates monthly at the end of the month, it is about as hands off as you can get for active management.
There is an ETF for those so inclined, GTAA, but I am experimenting with a put selling implementation, which I might start tracking here month to month. I wrote a small R script using quantmod to display the relevant information for given symbols, which should be available here: Tactical Asset Allocation R script
The output looks like this:
Sym R3m R6m R12m Close AvgRet OverMA
4 VNQ 0.09295631 0.22412597 0.08488552 63.65 0.13398927 TRUE
1 VTI 0.11671109 0.22466699 0.05037598 72.26 0.13058469 TRUE
2 VEU 0.10908623 0.13282091 -0.10915250 44.22 0.04425155 TRUE
5 DBC 0.07048208 0.11194076 -0.05767911 28.80 0.04158124 TRUE
3 IEF -0.02193049 -0.01718305 0.10473673 103.28 0.02187440 TRUE
Let me know if you have any comments or find any bugs.
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