ACTIVE BALANCED.


CONCEPT

Investors have heard about or have some form of exposure to 'balanced' mutual funds or strategic allocation plans where there is a static fixed allocation to stocks and bonds.  A popular ratio available in the industry is '60/40' where 60% of a portfolio is allocated to stocks and 40% allocated to bonds. The ACTIVE BALANCED strategy moves beyond the static portfolio allocation paradigm by dynamically shifting the allocation between the S&P500 and the 30 year US Treasury Bond depending upon market conditions.

The strategy uses multiple sub-models that generate independent signals which are aggregated to arrive at one top level signal for each asset. The various sub-models are designed to be conceptually unique and generate forecasts based on momentum and macroeconomic factors.

Typically the system will be allocated to both S&P and the T-Bond where the proportion of each asset with adjust several times in any given month. The chart below provides an illustration of how the allocations evolve through time. The net result is overweighting towards S&P during bullish environments and an overweighting towards T-Bonds during bearish environments. This is illustrated in the below chart:

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