Market Map Model Allocates To Cash

Our first article introduced the implementation of five components which, during fixed times in a given year, present us with a “map” of where to allocate capital between exchange traded funds based on 1) market indices (the SPDR Trust ETF (SPY), Vanguard Total market ETF (VTI), or Powershares QQQ Trust ETF (QQQ)SPY), 2) long treasury bonds (the iShares 20+ Year Treasury Bond ETF (TLT) or the Vanguard Long-Term Treasury Fund Investor Shares (VUSTX)) or 3) “cash” (short term treasury equivalents/money market funds).

At the end of 2013, the initial requirements towards taking action in allocating assets from the equity ETFs to “cash” via component #1 (ie. consecutive years of “overperformance” vs. “baseline”  ) were satisfied. Since then, we also needed further and final confirmation from component #2 ( Time series calculation conducted on performance of  SP500 over specific months, categorized into risk profiles ( Favorable, Neutral, and High) applied towards upcoming year). On 01/17/2014, this requirement was satisfied with the final “risk profile” outcome generated from the combined effect of components 1,2,& 3 = Neutral. Hence, a Neutral risk profile reading equates with a shift in asset allocation from equity based index etf’s to a “cash” allocation ( short term treasury equivalents). An explanation of the four risk profiles used in the Market Map model are described here seekingalpha.com/article/1738582-market-map-model-1-risk-profiles.

Table 1 shows the performance of the neutral risk profile years encompassed in the past 90 years data set.

Table 1

post 1 17 2014 neutral table

Table 2 = Market Map model performance using the S&P500 index over last 15 years of asset allocation periods through 01/17/2014.

Table 2

post 1 17 2014 SPX table

Table 3 = Market Map model performance using the Nasdaq 100 index over last 15 years of asset allocation periods through 01/17/2014.

Table 3

post 1 17 2014 NDX table

In conclusion, the Market Map model has indicated that an asset allocation change from an equity position to a cash position is warranted. The next time frame of note for a possible asset allocation shift will occur in the beginning of July.

In navigating the sea of financial opinion and emotion, we can find solace and confidence in 90 years of non-subjective, statistically significant data incorporated into a model that has produced consistent and repeatable outcomes.

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2 thoughts on “Market Map Model Allocates To Cash

  1. My tracking (1953-2013) suggests that you never go to cash totally. Currently I always hold some VXF as insurance, (20%), EDV/cash (20%) and dividends must be held year around to realize market returns so (60%). We have zero trading costs at Vanguard. The 2009 decline was an exception to the rule (relative strength was clueless for 5 months, and we did sell dividends 2009 and EARLY 2010 and repurchased in late 2010 to good advantage (much lower entry). We do rebalance yearly in the May to Oct dead season (move to EDV). We have about a 26% return over the 2010-EOY2013. Much less in earlier years. I use a relative strength model of ETFs to time tactical adjustments. Right now the model says stay in but be humble to catch emergent events and national elections (high volatility). We are studying proposed tax policy implications right now to see what the proposals means, if anything, to the well off investors. As a family office we get a lot of heat in the short run, but longer run we find size and tactical adjustments seem to pay-off. I like your work and am interested in your techniques for timing allocation decisions, which my research suggests is the whole game. Cheers.

    • Thanks for your interest. Yes, having 100% of our capital in cash isn’t necessarily prudent. The Map model is used for just one portion of personal capital. Another allocation of capital uses a switch model for Fidelity sector funds which, in 95% of the cases, always has “some” exposure to the market. We’re working on a switch model between Pacific Rim, Europe, and Latin American also.

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