Posted by Ed Mamula under
Narratives ,
TAA
Automatic 7 :
Leveraged long 1.5x IEF
A7 Mom & Pop :
What? Another month, another photo finish…tilting fully defensive at the last minute. I have revised A7′s rules for my personal account. I now allow leverage and use 10 Year US Treasuries exclusively as the “Bond” portion of any A7 allocation. For now, I will continue to track Mom and Pop in it’s original form, since it has been unexpectedly pacing GTAA over the last 9 months, and I want to continue to post this for the sake of the track record, though I am actually NOT trading the Mom and Pop portfolio. Incidentally, the original A7 (before leverage and IEF) would have been in BND / BSV in August, having decided to switch out of VNQ at the last possible second.
This has been a lot more interesting (read: difficult) in 2011 than I had hoped. A fuller discussion of the changes to A7 and performance update for July coming soon.
Oh yeah, although the A7 model portfolio will, for the time being, report its position as a leveraged long in IEF, I am actually using 10 year bond futures to simulate this allocation for my personal account.
Posted by Ed Mamula under
Narratives ,
TAA
One of the nice things about using other transparent TAA programs as a benchmark is that it is easy to see where we might be going wrong. As of the close on 7/18, MarketSci TAA is up 2.4% for the month, thanks in no small part to Gold’s (GLD) 7%+ month to date return. I still haven’t found a way to work GLD into Automatic 7 in a way that I am comfortable with, though I am dangerously close to throwing my hands up in disgust and resolving to keep a little gold in my portfolio at all times. Maybe that will mark the top. 
On the bond side of the portfolio, I can’t help but notice how MarketSci’s IEF component is outperforming A7′s BND component. Well BND has a shorter duration, but in fact, BND is the longest duration that A7 ever purchases. I am strongly considering replacing not only BND but also BSV with IEF in A7′s investable universe. The thinking there is that when bonds outperform risk assets, the long end will move the most. I am still looking at that. There’s still two more weeks until the next rotation, which is like a hundred years to someone like me who checks the ticker 100 times a day.