Happy New Year! – Thank you for all your support over the past year and I hope you have a safe and happy 2015.
Now to the markets…
My global asset allocation model has been very conservative over the past quarter. January looks to be no different.
Last month the strategy performed as such:
Backtested data calculated using ETFreplay
The strategy, which is based on relative strength and moving averages, kept half the portfolio in US Treasury bonds. (“TLT”). This allowed the strategy to avoid some of the global market volatility we saw in December, however it means it also wasn’t able to fully take advantage of the year end rally in the US equity markets.
2014 Performance of Strategy
The global asset allocation strategy underperformed the S&P 500 index for 2014. The model stayed conservatively invested during periods of higher volatility, which caused it to miss some of the market “spikes” we saw during the same timeframe.
Whether this is a sign that the appetite for global risk is drying up and US investors have their heads in the sand — or if the US is entering a period of global outperformance — has yet to be seen.
What is clear is global investors are still moving assets into the US Treasury market; either as a flight to safety, an opportunity for a more dovish Fed in 2015, or a combination of both.
January 2015 Allocation
January’s allocation remains conservative. The model is now holding 80% of the portfolio in US Treasuries, while the rest is invested in US equities.
Again if this is a flight to safety, or a hope for a more dovish Fed in 2015, is yet to be seen.
Volatility is increasing and may be a major theme for 2015…
Note: I/my clients may be long TLT, SPY, QQQ.
Feel free to leave a comment below or you can reach out to me privately here.
CEO & Chief Investment Officer