Recent Performance

Medium Term Outlook

The system is designed to rank asset classes for a medium term investment horizon.

We have tuned the parameters of the system so that one could rebalance as often as weekly or as infrequently as quarterly.

Most subscribers check the rankings on a weekly basis but actually rebalance monthly. Since some investors will only want to rebalance every three months, this section looks back at the top ranked assets three months ago and how they have performed recently.

Checking Performance

In order to evaluate whether the System is working currently with the range of assets, we compare the last three months performance of the top ranked assets with a simple “buy and hold” of all the assets serving as a benchmark.

If the relative return is positive, it shows that the System was working as expected over the past three months. This is important to track because there are investment costs associated with using any trading system. In this model, we have incorporated 3% switching costs. Your actual costs may be higher or lower and costs can have a significant impact on long term investment performance.

Current System Ranking

Our Global Model Portfolio

This portfolio is made up of 160 mutual funds that are managed by well known global fund management firms and registered for sale in Taiwan. Actually implementing this particular strategy would probably be most efficient in a Fund of Funds structure. The purpose is to demonstrate how the system works.

There are three key steps involved:

Selecting a Universe

The System is designed to work best when a broad universe of asset classes are selected. You should select mixture of:

  • Equities (by geography, sector and size),
  • Fixed income (by duration and rating),
  • Commodities (direct and indirect),
  • Currencies and/or Cash (money markets)

Too narrow a universe will negate the benefits of any asset allocation strategy.

Ranking the Universe

Asset prices really do go up as well as down. We expect the next few years to see more, rather than less, price volatility.

So the next step is to rank your assets from strongest to weakest.

Implementation

We have found that buying the top 15%-20% of the ranking yields the most stable results. By allocating your assets to the strongest sectors while monitoring you entire universe, you can avoid some of the drawbacks of a “Buy and Hold” strategy in today’s choppy markets. And sometimes, as we learned in 2008, the most promising asset class is cash.

Wherever you decide to draw the line – whether it is top 3, top 5 or top 10 – you buy the asset when it jumps above the line. When an asset falls out of your top ranking, you switch it to the newcomer. The result is that you are always fully invested in the strongest parts of your investment universe at any given time.

2009 Review