We are big fans of Wouter Keller and his work. We just implemented his latest portfolio, the Lethargic Asset Allocation (LAA), which combines macro-economic indicators with trend-following.
- chart courtesy of TuringTrader.com
The main idea of Keller's Lethargic Asset Allocation stems from Philosophical Economics' Growth-Trend Timing. They found that the performance of a trend-following system can be improved by only using trend-following when macro-economic indicators turn bad. This scheme helps avoid whipsaws and makes sure the strategy stays in risk-on mode while the economic is growing.
As a measure of economic health, Lethargic Asset Allocation uses the FRED's unemployment rate. TuringTrader makes it easy to bring in macro-economic data from FRED, thanks to its built in FRED data feed.
The strategy uses Simple Moving Averages to determine if unemployment is rising, or stocks are falling. Only if both conditions are true, the strategy switches from its risky allocation to its defensive allocation. As a result, the strategy is quite hesitant to switch to its risk-off allocation. This results in good performance during years of growth, and high tax efficiency.
We hope that this showcase demonstrates TuringTrader’s capabilities, and helps you spark some new trading ideas. If you are just curious and like to see how well the strategy does, check out the daily updated charts and metrics on TuringTrader.com.