Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

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Forester
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Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by Forester »

Following a popular Wagner award winning paper, an ETF was launched to profit from this strategy. Basically when lumber is outperforming gold over the prior 3 months, small cap & growth stocks are held, conversely when gold is beating lumber then long-term Treasuries are held instead.

http://www.naaim.org/wp-content/uploads ... -Gayed.pdf
RORO ETF rotates offensively or defensively based on historically proven leading indicators of volatility, with the goal of taking less risk at the right time.

The ETF rotates around US small-caps and growth (risk-on), and Treasuries (risk-off) based on Lumber relative to Gold as a risk trigger.
https://www.atacfunds.com/roro/

Versus VBINX the Vanguard US 60/40 fund:

Image

It's especially ironic that the designated risk-off asset (LT bonds) has fallen more than the riskier small caps.
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asset_chaos
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by asset_chaos »

Forester wrote: Sat Jun 18, 2022 5:20 pm
RORO ETF rotates offensively
Perhaps they should have stopped the description there.

More seriously market timing funds----or tactical allocation is the polite business name---have never done well. From a Morningstar study of all the funds in M*'s tactical allocation catagory,
“We found that very few tactical funds generated better risk-adjusted returns than Vanguard Balanced Index over the extended time period we studied. Not only has the group of tactical allocation funds underperformed, but not a single one of them outperformed the simple, low-cost, passive fund.”
Nice to see another example of that conclusion holding up in practice.

Ptak J. In Practice: Tactical Funds Miss Their Chance. Morningstar Advisor; 2012.
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by nisiprius »

Interesting that the base premise should have been falsified so soon after the ETF was launched.
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by GP813 »

A lot of things work in theory until you put them to the test with real money.
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by Oregano »

The very idea that someone would invest in certain stocks based on a lumber/gold ratio is pretty bonkers.
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by Expro »

Oregano wrote: Fri Jun 24, 2022 1:31 pm The very idea that someone would invest in certain stocks based on a lumber/gold ratio is pretty bonkers.
My thoughts exactly. I was all, like, "Huh?"
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by burritoLover »

yay data mining
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by Logan Roy »

What's almost amazing is how rarely (ever?) these tactical ETFs accidentally surprise to the upside, and start posting 50% returns in a bear market when they were only supposed to go up 10.

It should go both ways. Monkeys don't seem to have a problem generating alpha.
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by marcopolo »

Yet. some people (I am not naming any names) continue to think they can make predictions about market behavior :oops:
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by Oregano »

Logan Roy wrote: Fri Jun 24, 2022 4:13 pm What's almost amazing is how rarely (ever?) these tactical ETFs accidentally surprise to the upside, and start posting 50% returns in a bear market when they were only supposed to go up 10.

It should go both ways. Monkeys don't seem to have a problem generating alpha.
Funny thing is that the same fund manager runs ATAC Rotation (ATACX), which had a huge year in 2020 when the asset base was small. Investors flooded money into it, after which it has promptly underperformed by a massive amount. These two, along with their third fund, JOJO, have all been disastrous in 2022.

Nonetheless, you can find the fund manager on Twitter still being an insufferable pretentious egotist.
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by AlwaysLearningMore »

asset_chaos wrote: Sat Jun 18, 2022 7:18 pm
Forester wrote: Sat Jun 18, 2022 5:20 pm
RORO ETF rotates offensively
Perhaps they should have stopped the description there.

More seriously market timing funds----or tactical allocation is the polite business name---have never done well. From a Morningstar study of all the funds in M*'s tactical allocation catagory,
“We found that very few tactical funds generated better risk-adjusted returns than Vanguard Balanced Index over the extended time period we studied. Not only has the group of tactical allocation funds underperformed, but not a single one of them outperformed the simple, low-cost, passive fund.”
Nice to see another example of that conclusion holding up in practice.

Ptak J. In Practice: Tactical Funds Miss Their Chance. Morningstar Advisor; 2012.
Thank you for that reference. From the Feb. 2012 article: "In extending our study of tactical mutual funds through Dec. 31, 2011, we found that tactical funds generally struggled to deliver competitive risk-adjusted returns when compared with a traditional balanced fund. With a few exceptions, they gained less, were more volatile, or were subject to just as much downside risk as a 60%/40% mix of U.S. stocks and bonds."
https://www.morningstar.com/articles/64 ... eir-chance
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by Beensabu »

Oregano wrote: Fri Jun 24, 2022 6:12 pm Funny thing is that the same fund manager runs ATAC Rotation (ATACX), which had a huge year in 2020 when the asset base was small.
Everybody had a huge year in 2020.
Nonetheless, you can find the fund manager on Twitter still being an insufferable pretentious egotist.
Let's make something good come from this.

https://twitter.com/leadlagreport?ref_s ... r%5Eauthor

Omg. Dude's not being an insufferable pretentious egoist. Dude's passed through a breakdown and is skating the nihilistic edge while going through ego death (all while trying to hold down the job). I will watch him do it.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by Logan Roy »

Oregano wrote: Fri Jun 24, 2022 6:12 pm
Logan Roy wrote: Fri Jun 24, 2022 4:13 pm What's almost amazing is how rarely (ever?) these tactical ETFs accidentally surprise to the upside, and start posting 50% returns in a bear market when they were only supposed to go up 10.

It should go both ways. Monkeys don't seem to have a problem generating alpha.
Funny thing is that the same fund manager runs ATAC Rotation (ATACX), which had a huge year in 2020 when the asset base was small. Investors flooded money into it, after which it has promptly underperformed by a massive amount. These two, along with their third fund, JOJO, have all been disastrous in 2022.

Nonetheless, you can find the fund manager on Twitter still being an insufferable pretentious egotist.
I've got to think, as much as backtesting fools people, these fund managers still haven't done enough of it – because we should all know how differently things behave when you've got the threats of inflation and recession together. The thought of going into LTT now as a risk-off trade. It seems finance attracts these extremely myopic thinkers – I think John Hussman's another example; how you can be wrong for 20 years and still behave like you're winning some moral victory.
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by invest2bfree »

Forester wrote: Sat Jun 18, 2022 5:20 pm Following a popular Wagner award winning paper, an ETF was launched to profit from this strategy. Basically when lumber is outperforming gold over the prior 3 months, small cap & growth stocks are held, conversely when gold is beating lumber then long-term Treasuries are held instead.

http://www.naaim.org/wp-content/uploads ... -Gayed.pdf
RORO ETF rotates offensively or defensively based on historically proven leading indicators of volatility, with the goal of taking less risk at the right time.

The ETF rotates around US small-caps and growth (risk-on), and Treasuries (risk-off) based on Lumber relative to Gold as a risk trigger.
https://www.atacfunds.com/roro/

Versus VBINX the Vanguard US 60/40 fund:

Image

It's especially ironic that the designated risk-off asset (LT bonds) has fallen more than the riskier small caps.
Every anomaly of market inefficiency after being known is no longer exploitable.

Random walk down wallstreet: "You don't find $20 notes on the street"

January Effect, Commodities negative Correlation all have gone by the way side.
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by nisiprius »

Forester wrote: Sat Jun 18, 2022 5:20 pm... a popular Wagner award winning paper...
Wanted "Rheingold," got "Götterdämmerung."

(Someone had to do it, it might as well be me.)
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by Logan Roy »

invest2bfree wrote: Sat Jun 25, 2022 8:25 am
Forester wrote: Sat Jun 18, 2022 5:20 pm Following a popular Wagner award winning paper, an ETF was launched to profit from this strategy. Basically when lumber is outperforming gold over the prior 3 months, small cap & growth stocks are held, conversely when gold is beating lumber then long-term Treasuries are held instead.

http://www.naaim.org/wp-content/uploads ... -Gayed.pdf
RORO ETF rotates offensively or defensively based on historically proven leading indicators of volatility, with the goal of taking less risk at the right time.

The ETF rotates around US small-caps and growth (risk-on), and Treasuries (risk-off) based on Lumber relative to Gold as a risk trigger.
https://www.atacfunds.com/roro/

Versus VBINX the Vanguard US 60/40 fund:

Image

It's especially ironic that the designated risk-off asset (LT bonds) has fallen more than the riskier small caps.
Every anomaly of market inefficiency after being known is no longer exploitable.

Random walk down wallstreet: "You don't find $20 notes on the street"

January Effect, Commodities negative Correlation all have gone by the way side.
That's the reason (imo) trying to systematise active strategies makes even less sense than paying a fund manager. It's systematised obsolescence. It's trying to win a poker tournament with a strategy that's published regularly in Poker Monthly.

The funds tracking the inefficiency potentially become the exploited – I remember a few years back, an episode of volatility when I think a lot of hedge funds front-ran a trade risk parity funds were going to have to do.
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by stormcrow »

Beensabu wrote: Sat Jun 25, 2022 12:03 am Omg. Dude's not being an insufferable pretentious egoist. Dude's passed through a breakdown and is skating the nihilistic edge while going through ego death (all while trying to hold down the job). I will watch him do it.
This is simultaneously one of the most charitable descriptions and harsh call outs I have read in a long time. :D
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by Forester »

It's been a bad year for $RORO (and its sister funds), down 45% YTD, somehow underperforming both the the S&P 500 and the risk-off asset (long term bonds) which $RORO is intended to rotate into.

However it appears that the lumber vs gold strategy is to be resurrected with a new ETF named $LOLO : https://www.sec.gov/Archives/edgar/data ... 080522.htm

This ETF will switch between 100% % 200% exposure to stocks based on the trailing 10-week lumber/gold ratio.
Leverage-On. When the LOLO Index signals a Leverage-On position, the Fund will seek to have a 200% daily exposure to either the large-cap equity market (Large-On) or the small-cap equity market (Small-On), as applicable (and as described more below). To achieve the 200% daily exposure, the Fund will invest in a combination of one or more Underlying ETFs, including Unleveraged Index ETFs, 2X Leveraged Index ETFs, and/or 3X Leveraged Index ETFs...
Time will tell whether $LOLO would fare better by simply measuring the stock index against its own momentum (the strategy would then resemble this: https://www.portfoliovisualizer.com/tes ... odWeight=0)
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by NoRegret »

Forester wrote: Sat Jun 18, 2022 5:20 pm Following a popular Wagner award winning paper, an ETF was launched to profit from this strategy. Basically when lumber is outperforming gold over the prior 3 months, small cap & growth stocks are held, conversely when gold is beating lumber then long-term Treasuries are held instead.

http://www.naaim.org/wp-content/uploads ... -Gayed.pdf
RORO ETF rotates offensively or defensively based on historically proven leading indicators of volatility, with the goal of taking less risk at the right time.

The ETF rotates around US small-caps and growth (risk-on), and Treasuries (risk-off) based on Lumber relative to Gold as a risk trigger.
https://www.atacfunds.com/roro/

Versus VBINX the Vanguard US 60/40 fund:

Image

It's especially ironic that the designated risk-off asset (LT bonds) has fallen more than the riskier small caps.
Single parameter models also mean a single point of failure. FEW understands this :D

On the other hand, DBEH is doing ok.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
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Re: Market timing tactical allocation ETF disappoints ($RORO) vs 60/40

Post by Beensabu »

Thank you for reminding me to go check on dude's Twitter account...

My evening is made.

Omg. Twitter just pissed me off. What is this nonsense about having to log in to view stuff? The rigamorale I just went through for a few minutes of entertainment is unnecessary.

^ that was an edit

This is another edit:

I take it back. This is not entertaining at all. It was last time. Not so anymore... Our society may be done for, if this is the content we provide to ourselves.

No wonder they make you log in first. Are you one of us? Are you? Prove it!

More edit: Now I'm thinking that he might not be okay. Do his friends know? Should I do something?
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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