Goldman Sachs (GS) Global Tactical Asset Allocation portfolios were an early leader in tactical asset allocation strategies. Their strategy is a type of cross-asset (or multi-asset) momentum based upon tactical asset allocation.
- Calculate the previous 12-month return.
- Rank the returns among these six assets.
- Choose the top three assets and invest in them in equal amounts.
- Any asset has to score higher than CASH to qualify for the purchase.
The funds we used and their ETF counterparts are: Fund ETF Description VFINX Total Stock Market VGTSX International Stock VEIEX Emerging Markets VGSIX Real Estate QRAAX Commodities VFISX Short Term Bond VFITX Intermediate Bond VUSTX Long Term Bond VFSTX Aggregate Bond VFICX Intermediate Bond VWESX Long Term Bond VWEHX High Yield Bond VFIIX Intermediate Bond BEGBX International Treasury Bond VIPSX Inflation Protected Bond
In the case of the bond funds, they are all evaluated and the best one is put forward for ranking with the other asset classes.
We will compare this with the five-asset SIB, which follows a similar path except that it will always have a fixed income (or cash) component. In this case, we selected the growth portfolio which has 20% of the assets in fixed income.
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| Portfolio Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds | 11% | 63% | 12% | 74% | 16% | 93% |
| Five Core Asset Index Funds Tactical Asset Allocation Growth | 10% | 56% | 8% | 57% | 14% | 86% |
We can see that the ability to pick the best three assets -- as opposed to the best two and fixed income -- gives the portfolio an extra boost.
The returns of both portfolios is good given the difficult market conditions.
In the future, we will consider what happens if we reduce the assets deployed to one or two -- intuitively we would expect higher performance but also higher volatility.
