Growth-Trend Timing and 60-40 Variations: Lethargic Asset Allocation (LAA)

15 Pages Posted: 15 Dec 2019 Last revised: 22 Jan 2020

Date Written: December 4, 2019

Abstract

Growth-Trend (GT) timing from Philosophical Economics is a brilliant timing strategy which only signals a bear market when both the trend in the unemployment (UE) rate and the SP500 index are bearish. As a result, it captures most market downturns while switching to cash in less than 15% of the time. In this sense, its crash protection is much less drastic than our own “canary” protection in our DAA strategy (25% in cash) or the breadth protection in our VAA strategy (around 50% in cash). In this paper we apply GT timing to the well-known 60-40 static benchmark (60% SPY - 40% IEF), and search in-sample for variations on 60-40 with GT timing. For these variations, we in particular consider risky portfolios which are also agnostic for inflation and yield, inspired by the various static portfolio like the Permanent Portfolio and its siblings. Our final strategy switches between two static portfolios based on GT timing. This strategy is called the Lethargic Asset Allocation (LAA).

Keywords: Growth-TrendTiming, Unemployment, Permanent Portfolio, Golden Butterfly, 60-40, Trend, Momentum, Drawdown, Crash Protection, Backtesting, Datasnooping, LAA, DAA, VAA, PAA, TAA

JEL Classification: C00, C10, C22, G00, G11, G10, G14

Suggested Citation

Keller, Wouter J., Growth-Trend Timing and 60-40 Variations: Lethargic Asset Allocation (LAA) (December 4, 2019). Available at SSRN: https://ssrn.com/abstract=3498092 or http://dx.doi.org/10.2139/ssrn.3498092

Wouter J. Keller (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, NH 1081 HV
Netherlands
+31622392446 (Phone)

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