Swedroe: Tactical Approaches Miss The Mark

February 08, 2017

  • Very few TAA funds generated better risk-adjusted returns than VBINX.
  • Just nine of the 112 TAA funds in existence over the period August 2010 through December 2011 had higher Sharpe ratios (a measure of risk-adjusted returns).
  • Only 27 of the funds experienced a smaller maximum drawdown (the majority experienced larger peak-to-trough declines).
  • As of the end of the period studied, only 14 of 81 tactical funds in existence since October 2007 posted lower maximum drawdowns during the 2008 financial crisis, the spring/summer 2010 correction and the European debt-related downtown soon after. In other words, just 17% of them consistently provided the insurance investors were paying for.

Maybe Not …

Keep these results in mind the next time you are tempted to tactically asset allocate. The bottom line: big fees, poor results. Put another way, TAA is just another game in which the winners are the product purveyors, not the investors.

I believe articles like this should be filed under the category that author Jane Bryant Quinn referred to as “investment porn”: “Americans are indulging themselves in investment porn. Shameless stories about performance tickle our prurient financial interest…. Mainline magazines (like Money, Smart Money, and Worth) … rarely descend to hard-core porn. That is what you get from the greedy gurus on cable TV, or the cruising shysters on the Internet. … We in the quality-media crowd specialize in soft-core porn. … The porn test isn’t the headline, but whether the story is anchored in reality.”

Larry Swedroe is the director of research for The BAM Alliance, a community of more than 140 independent registered investment advisors throughout the country.


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