I think every one with a retirement account will benefit from reading this paper (link below). Another paper that one probably should also read is Mebane Faber's paper. I posted the other paper sometime back and is available under "Quantitative Systems" label. So what is special about this particular paper?
One problem with most asset rotation methodologies is they end up allocating big portion of the portfolio in correlated assets especially in times of stress. For example, Emerging markets and US markets are not two separate asset classes but most planners consider them as separate. Why they do is a long story and for another post.
On other hand if one doesn't do rotation and just do asset allocation then the method is not taking advantage of the asset momentum. A portfolio needs both momentum to maximize gains and diversification to minimize risk. The methodology in this paper helps on this.
Another problem with tactical asset allocation methodologies is they often consider only relative momentum i.e., relative change/strength between assets. The problem is, in times of stress both high and low relative strength assets can be going down. Putting hard earned money in a sinking ship just because it has high relative strength doesn't make sense except in math theories. The methodology in this paper solves it by incorporating time-series/absolute momentum (fancy quant word..think ROC indicator/percent price change in last X months).
Other concepts in the paper that I liked are using T-Bills as hurdle rate for time-series momentum and designing the model as a collection of risk modules. These are just my opinions. Your take away might be different. Another aspect I liked about paper is no/low math. I don't like reading papers that has too much math.
Please feel free to share your comments/thoughts.
Link: Risk Premia Harvesting
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