TAA strategy performance over time

In this post I’m going to take a look at performance as a whole of a group of TAA strategies and how that performance has varied over time. I’ll then compare it to the classic 60 40 US stock US bond portfolio and a more globally diversified and modern portfolio, the All Weather Portfolio. There’s some interesting things to note in the analysis. Let’s get to it.

The data I’m using is from Allocate Smartly. I’ve taken return data for all the TAA strategies they track, 60/40, and the All Weather Portfolio (a globally diversified portfolio). Data is from 1970 through October 2016 (note: not all the strategies have performance data going back to 1972). I averaged the performance of all the TAA strategies to compare them as a whole to the two other ‘static’ strategies. Finally, to smooth out the data somewhat I calculated three year rolling returns for all the portfolios. Below is a chart of the 3 year rolling performance of all the TAA strategies, the 60/40 portfolio, and the All Weather Portfolio.


As you would expect performance varies quite a bit over time for all of the strategies. And while the chart is still quite noisy there are some important things to note I think. If you focus on the TAA performance over 60/40 you’ll notice the TAA strategies outperform for some period of time then underperform for some period of time. Below I’ve shaded periods of outperformance and underperformance for TAA.


It seems like there are four distinct period or regimes. Put into table form.


And finally here is some hard performance data in numbers. I’ve compared all the portfolios to the 60/40 portfolio. Also, I’ve added a balanced portfolio consisting of 1/3 TAA, 1/3 60/40, and 1/3 All Weather Portfolio. Annualized returns from 1972-Oct 2016 are shown, the average outperformance compared to 60/40, the average underperformance compared to 60/40, the percentage of time the portfolio outperforms 60/40, the worst year for the portfolio, and the number of consecutive year below 0% return.


There is a lot that can be said here. A few things I’ll note. TAA strategy performance varies a lot. That shouldn’t come as a surprise. And it’s not the panacea that many investors seem to expect out of it. TAA outperforms for certain periods and underperforms for others. Those periods of underperformance are associated with big equity bull markets. Again should not come as a surprise if you understand how TAA strategies work. We’re currently in the middle of a period of underperformance, which if history repeats, could last a few years longer. Overall the outperformance rate for TAA is about 6 out of 10 years. TAA works over time by limiting downside and outperforming by a larger margin than it underperforms. Finally, maybe a balanced approach consisting of TAA, US heavy 60/40, and a globally diversified portfolio is not a bad compromise vs an all or nothing one strategy approach.

P.S. Before I go, you may be asking is there any big difference among all the TAA strategies themselves. Do some do better than others in these various periods? The short answer is yes, there is quite a big difference amongst the TAA strategies. But that is a topic for another post.


Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

9 thoughts on “TAA strategy performance over time

  1. Thank you Paul! This is teriffic! I have been doing TAA because I believe in it and do not wish participate in another wipe out with B/H. Many of these TAA strategies are helped and damped with a stable something. Using treasuries for a 25% or so of the portfolio has back tested well. But in a rising interest rate environment of course that does not do so well as everything goes down most of the time when that happens. This however is a blended buy/hold of a couple of strategies and the go juice from TAA when it is appropriate, but when it’s not working the others will. Great Job. Could you expound on what ETF/Funds you used or are good to use for the 60/40 and All Weather Funds in your study? I can do some of my own testing with those. I’m headed to the beer tip jar next!

    1. I use whichever ETF are used by AllocateSmartly in the strategies they track. That’s where all this data came from. I just made the squiggly charts…


  2. Paul,

    Thank you for another interesting post. Another plus to combining TAA with a buy and hold/bucket strategy is that it eases the psychological pain when TAA underperforms. Buy and hold also has tax advantages in taxable accounts. Lastly, as the correlation matrix in Allocate Smartly shows, the buy and hold strategies are often less correlated to the various TAA strategies (in contrast to how many, but not all, of the TAA strategies are more highly correlated to each other). Thus, as your chart shows, the two types of strategies often perform differently at the same time, which all in all can be a real plus in an overall portfolio.

    I’m so glad you are keeping up your great work.

    Best regards,

    Mr. FIDough

  3. Thanks for this Paul. Definitely looking forward to a future post where you break-out the individual TAA portfolios.

  4. Does any investing strategy outperform all the time? This is a loaded question because we have to agree on how to measure performance and a time period. Of course the answer is “No” just the same. The finding that TAA underperforms for years at a time is expected. However the degree of underperformance must be taken into account and from what you have shown it isn’t too dramatic for TAA. Further the likelihood that an individual will stick with an investment strategy should be considered and a major component here is drawdown which wasn’t discussed.

    Paul this meant as constructive criticism as I respect what you do.

    1. Totally agree Fred. In a way this post is meant to ‘remind’ people that no investment strategy outperforms all the time and that returns are not the be all end all of investing. Both topics of which I have addressed quite a bit in the past. But I hear lot of chatter of how TAA is dead, especially the last few years, how it will continue to underperform going forward, how rising rates will kill it, etc…I thought it was important to address this in a historical context. Basically, there is nothing unusual and unexpected in what’s going on with TAA.


  5. Hi Paul,

    Been using Allocate Smartly now for over a month.  I find it to be a very useful tool and love all the analysis they have done on the various strategies, other than just Faber’s.  After doing long term and relative short term analysis, for the TAA portion of my portflio I am doing GTAA3 (30%), GTAA6 (25%), Stoken’s ACA (25%) and Adaptive AA (20%).   Of course you know me, I still employ trailing stop losses at 10%, which helps me sleep at night.  🙂

    One thing I would like you to weigh in on is Quant investing for those of us who have most of our investment portfolio tied to a 401K,  While I can invest in ETF’s and mutual funds, most 401Ks do not allow a person to invest in individual stocks.  Seems most of your quant investing strategies involve selecting individual stocks.  Are there other vehicles we can use to “mirror” quants short of just investing in Sector ETFs that make up the S&P?  Interested in your thoughts

    BTW…..very glad to see you are still posting.  Happy travels.


    1. Hey Mark,

      Glad to hear you’re liking Allocate Smartly. I’ve found it quite useful myself. I’ve gone to 3 TAA strategies myself; GEM, AGG3, and Varadi’s Percent channels.

      As far as your quant question, no I haven’t found anything to mirror the individual stock quant strategies. Maybe we should launch an ETF… 😉


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