At our firm, we use an Active Allocation strategy whereby we manage the mix by over/under weighting each asset class using a trend-following, rules-based signal. We use index funds (etfs mostly) to build our clients globally diversified portfolios. We've been able to perform very well vs. the benchmarks by essentially capturing the growth during uptrends and protecting from significant loss during downtrends. We'll demonstrate our strategy using a single global stock index etf, the MSCI All-World ticker ACWI. (Incidentally, we use stockcharts.com because they adjust for all dividends in their chart so we can better follow total return).
ACWI hasn't been out that long, but we'll take it from it's inception, April 30, 2008. At inception, our signal was "down". Below is the historical signal and results:
4/30/2008: Sell $50.35.
5/18/2009: Buy $32.47 Avoided 35.5% loss.
5/14/2010: Sell $39.28 Captured 20.9% gain.
9/10/2010: Buy $40.22 OK, missed 2.4% gain, no big deal (whip).
8/02/2011: Sell $45.70 Captured 13.6% gain.
1/25/2012: Buy $44.55 Missed dip and 2.5% loss. OK.
Today, 4/25/2012, we're still in and ACWI is $46.46, up 4.3% so far. In 5 years, we've done only 5 trades, captured some nice gains and avoided a critical loss in 2008. It's a simple strategy that is manageable, somewhat tax-efficient, and works to create "growth & protection". Follow along with me in these blogs for signal changes and updates.