Recognizing strengths and weaknesses among primary asset classes is the core goal of our Tactical Trend strategy. The strategy seeks to identify relative strength and trend strength in an attempt to allocate capital to the strongest asset classes while underweighting or eliminating exposure to the weaker asset classes. We perform rigorous surveillance on the following asset classes: US equities, international equities, fixed-income, commodities, and cash. A mix of these asset classes make up 100% of Tactical Trend’s total allocation at any given point in time.
Year-to-date our allocation has not shifted much, with both domestic and international equities trading well and continuing to exhibit asset class leadership. As previously noted, political and global headlines may dominate the newswires, but equity markets and prices have enjoyed a steady bid, with pullbacks being historically shallow. In our analysis, we try to spend twice as much research time on the opposite side of our trade as we do on our position. So what currently bothers us? Most of our concern in Tactical Trend revolves around our secondary indicators, which are sentiment-driven. The 4th-quarter bullish confidence numbers among both individual investors and professional money managers have continued to rise and have reached levels that caused the market to pause or correct in the past. This situation can also be viewed through the lens of the very low readings of the CBOE put/call ratio, which tells us that call buyers are dominating the action. We will continue to monitor and analyze these indicators.
US Equity: (63%) Solid broad market exposure through QQQ & RSP. Bullish moves in Transports, Basic Materials, and Consumer Discretionary.
International Equity: (30%) Primary exposure in Asia with smaller additions in Latin America. Japan and our emerging-market positions have had a strong year but have shown some recent waning of momentum.
Fixed Income: (0%) No position at this time
Commodities: (0%) No positions at this time
Cash: (7%)
Matthew C. McAleer
Managing Director & Portfolio Manager
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