Tax Efficient Way of Implementing Mebane Faber's 10 Month SMA Portfolio?

Javelina

I'd like to allocate a portion of my portfolio to Mebane Faber's Ivy Portfolio with the 10 month SMA rule (move each asset class to cash when it drops below 10 month SMA). The problem with this strategy is that outside of a tax-advantaged account there will be constant short and long term capital gains (and possibly losses to be fair). I'm wondering for instance if there are any ETFs that use this strategy (or something quite similar) because I believe if it's in the form of an ETF it won't generate the constant taxable gains.

Javelina

PS- I know that GTAA uses the Ivy Portfolio premise, but I'm having trouble finding out if they actually use the 10 month SMA rule or not.

scott

I question how well the strategy does in this environment, but that said, I think it would be vastly easier to use the ETF to accomplish it rather than the costs (trading, time and otherwise) to try and accomplish it on one's own. I'm foggy, but I thought GTAA used 200 dayMA, but I could be wrong.

I'm still a believer in market timing strategies (various), but these sorts of funds (see the Toews funds, as well as things like Forward Tactical Growth, although the Forward fund has finally started to click, it looks like) have not fared all that well in this market environment - the GTAA etf really has not done terribly well. I think in terms of GTAA, the strategy has on a number of occasions lead it to be late into rallies and sell late in downturns. I do think the strategy can be successful, but it hasn't been so far - alternative strategies like managed futures do go through cold periods, but GTAA continues to trade below its initial offering price.

[Deleted User]

Hello,

If anyone knows of an etf that utilizes the strategy it will be Ron Rowland.

I have linked below a contact link to his firm.

http://investwithanedge.com/contact

Hope this helps.

Good Investing,
Skeeter

AndyJ

GTAA is Faber's baby. Below is how he described it prior to launch, on his own web site. I owned it for a few months, and recall that the AdvisorShares site had more information on the actual strategy early on, but then that info was scrubbed a bit later, leaving it kinda murky how exactly it worked. The AS site might be worth a look now, though.

I gave up on it, and see that it's still not really found its stride. I think Scott's notes on the strategy are on the money.

"Global Diversification – The GTAA strategy targets 50-100 ETFs in all of the major asset classes including stocks, bonds, real estate, commodities, and currencies. This approach allows for each asset class to be examined in more granularity than the published models (think spreading the MSCI EAFE into Japan, UK, Germany etc and Commodities into Agriculture, Energy, etc and the S&P500 in Tech, Energy, etc.)

Trend Following – The GTAA strategy attempts to be invested in asset classes that are appreciating and out of asset classes that are declining.

Risk Management – The GTAA strategy attempts to control risk by using multiple timing algorithms across various timeframes in an attempt to lower volatility and drawdowns. Asset classes can be over/underweighted based on other momentum, mean reversion, and fundamental factors. In addition, we have the ability to trade both futures and options in an attempt to hedge the portfolio.

Shareholder Friendly – We have contractually committed to lower the management fee as the AUM of the ETF increases. The management fee will decline according to set breakpoints. This is one of the features I really campaigned for. It is something that is commonly seen in the separate account space, but rarely if ever in the public fund space (at least in writing). Some funds say they will reduce their management fees as they grow but never do.

Conflicts of Interest -The portfolio manager will have a significant amount of their net worth invested in the Fund. (In my case it will be 90%+.)

To learn more about the GTAA ETF, info can be found on the AdvisorShares website."

scott

Reply to @AndyJ: I think the particular timing strategy just seemed too laggy; I noticed on a number of occasions that it would appear to get into and out of risk late and the result something like 18 months later is - unfortunately - disappointing. I'm a believer in timing strategies (and I read Faber's book and his work and website), people make it work - but this hasn't and I gave up on it, too.

A number of the actively managed managed futures funds held up better with less risk (even Merger Arbitrage funds have done better over the time period), and that's really saying something. I hope GTAA will turn around somehow, but I would definitely not recommend it at this point. In terms of a multi-asset strategy, I continue to go with AQR Risk Parity, although obviously that doesn't have the technical/timing factor/strategy and uses futures instead of ETFs.

Javelina

Another odd thing about GTAA after looking at the portfolio is that instead of taking a position in say EEM or VWO with their very low fees. GTAA is taking positions in most of the component single country ETFs that all have significantly higher fees. It's not as if they chose say the 10 best performing single country ETFs to take advantage of momentum, they loaded it up with probably 30 of them so I don't really see the momentum aspect of it.