The Flow Whisperer – TAARSS says prefer Fixed Income in Q4 and extend duration
05 October 2015 (23 pages/ 1392 kb)
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Tactical Asset Allocation Relative Strength Signal (TAARSS) Monthly Update
Top recommendations for September: US Treasuries, and US, Europe, and Japan equities.
Market review
Risk assets plunged, while safer ones found support in September. Global equities (ACWI) and Commodities (DBC) both plunged by 3.4%, while US Bonds (AGG) recorded modest gains of 0.81%.
TAARSS rotation strategy monthly and quarterly performance review
Quarterly and monthly TAARSS strategies were mixed. Quarterly strategies underperformed; while most monthly strategies outperformed their benchmarks.
Tactical positioning for October 2015 and Q4 based on TAARSS
ETF flow trends clearly suggest a defensive positioning into year end. Our model suggests a clear preference for fixed income over equities, and away from commodities in Q4. In addition, our model suggests an increase in the duration of fixed income portfolios by adding long and intermediate exposure for the same period.
For the month of October, TAARSS suggests a positioning favoring US Treasuries, and investment grade over high yield credit within fixed income. For equity positions a defensive approach with a preference for DM and the US over Emerging Markets is recommended. Within the US, a broad all-cap or equal weighted exposure may be more suitable; while in Intl DM, Japan or European regional allocations seem to have better investment demand support. In EM countries, weakness in China and India remained, but seemed to be fading; while the significant selling pressure in Indonesia suggests investors should stay away. In general, specific country risk outside Japan and the US should be avoided in order to benefit from diversification particularly during times of higher volatility. In the commodity space we don’t see strong signals worth highlighting. See Figure 13 and Figure 14 for full allocation details for the month of October and Q4.