GTAA 13: Faber’s 13-asset tactical allocation

GTAA 13 is the thirteen-asset version of Mebane Faber's Global Tactical Asset Allocation, added in the February 2013 update of his paper "A Quantitative Approach to Tactical Asset Allocation". It holds thirteen asset classes at fixed weights and times each one on its own: hold it while its price is above its 10-month average, otherwise hold Treasury bills.

The idea#

The original GTAA 5 applies a simple trend rule to five asset classes. Faber argued there is no reason to stop at five. Splitting stocks, bonds, and real assets into more pieces spreads the risk further, and he tilted the US stock part toward value and momentum, two styles that have beaten the broad market over long periods. The trend rule stays the same: each asset class is owned only while it is trending up, so the portfolio moves toward cash in broad bear markets and stays invested when most markets rise.

How it works#

The portfolio holds thirteen fixed slices:

• 5% US large-cap value (IWD)
• 5% US large-cap momentum (PDP)
• 5% US small-cap value (IWN)
• 5% US small-cap momentum, with the Russell 2000 (IWM) standing in
• 10% developed-market stocks outside the US (EFA)
• 10% emerging-market stocks (EEM)
• 5% 10-year Treasuries (IEF)
• 5% foreign government bonds (BWX)
• 5% US corporate bonds (LQD)
• 5% long-term Treasuries (TLT)
• 10% commodities (GSG)
• 10% gold (GLD)
• 20% US real estate (VNQ)

At the close of the last trading day of each month, each slice is checked on its own. If its fund is above its 10-month average, the slice holds the fund. If it is below, the slice holds Treasury bills (BIL) until the fund recovers.

What the backtest shows#

The ETF-era test starts in August 2008, once the foreign bond fund has enough history. Over that stretch GTAA 13 kept its promise on risk: its worst drawdown was about 13%, against almost half for the S&P 500 and close to 30% for a 60/40 portfolio. It lost 6% in the rest of 2008 while the S&P 500 lost 30%, and 4% in 2022 while the market lost 18%.

The price was a low return. It compounded at about 5% a year, well below both the S&P 500 and a 60/40 portfolio, and trailed both on risk-adjusted return. It gained little in the strong stock years of 2013, 2019, and 2023; in 2023 it made less than 1% while the S&P 500 rose 26%.

Its worst drawdown ran from April to August 2011, and it took until June 2014 to regain its old high. Since the 2013 update it has returned about 5% a year with a worst drawdown near 9%.

There is no simulated history for this version. The foreign bond fund and the momentum fund have no modelled record before they launched, so the test cannot reach back to the decades that built GTAA's reputation.

When it struggles#

• Strong stock markets. Only a fifth of the portfolio is in US stocks, and a fifth is in real estate.
• Choppy trends. Prices that cross their averages back and forth cause repeated small losses, and with thirteen assets that happens often.
• Weak real assets. Commodities, gold, and real estate make up 40% of the weight, so long slumps in them weigh on returns even when the trend rule moves them to bills.

Using it on Tactfolio#

The live strategy above runs these rules on daily data, with a 210-session average standing in for ten month-ends, PDP for large-cap momentum, and IWM for small-cap momentum. Copy it to hold 10-year Treasuries instead of bills when an asset is below trend, a cash choice Faber also tested.

Year by year

* Partial year.

The rules as implemented

This is the exact tree Tactfolio runs, rebalanced monthly with signals and trades at the close. Open it to inspect or copy it.

Sources and caveats

• Mebane Faber, A Quantitative Approach to Tactical Asset Allocation (2007, updated February 2013)

• Weights as in the paper: 5% each in US large value, large momentum, small value, small momentum, 10-year Treasuries, foreign 10-year bonds, US corporate bonds, and 30-year Treasuries; 10% each in developed stocks, emerging stocks, commodities, and gold; 20% in REITs.
• ETFs stand in for the paper's indexes: IWD for US large-cap value, PDP (Invesco DWA Momentum) for US large-cap momentum, IWN for US small-cap value, EFA for MSCI EAFE, EEM for MSCI Emerging Markets, IEF for 10-year Treasuries, BWX for foreign 10-year government bonds, LQD for US corporate bonds, TLT for 30-year Treasuries, GSG for the GSCI, GLD for gold, VNQ for NAREIT, and BIL for Treasury bills. PDP is used because MTUM, the purer large-cap momentum fund, starts only in 2013.
• No small-cap momentum fund reaches back to 2008 (DWAS starts in 2012), so IWM, the Russell 2000, stands in for US small-cap momentum.
• Faber compares each month-end close with the average of the last ten month-end closes; this version uses the daily 210-session average, the closest daily equivalent.
• Signals and trades use the close of the last trading day of each month, as in the source.

Common questions#

What is GTAA 13?#

It is Mebane Faber's thirteen-asset timing portfolio. Each asset class has a fixed weight and is held only while its price is above its 10-month moving average; otherwise its weight sits in Treasury bills.

What ETFs does GTAA 13 use?#

IWD, PDP, IWN, IWM, EFA, EEM, IEF, BWX, LQD, TLT, GSG, GLD, and VNQ, with BIL as cash. PDP and IWM stand in for the large and small momentum sleeves, which have no long-history index fund.

How is GTAA 13 different from GTAA 5?#

GTAA 5 holds five asset classes at 20% each. GTAA 13 adds emerging stocks, gold, three more kinds of bonds, and value and momentum tilts, and gives real estate the largest weight. The trend rule is the same. GTAA Aggressive 6 uses the same thirteen assets but holds only the six strongest.

Does GTAA 13 still work?#

It still limits losses, with a worst drawdown near 13% since 2008. But it has returned far less than a 60/40 portfolio over that time. The live record on Tactfolio shows how it is doing now.

Related strategies

• Global Tactical Asset Allocation (GTAA 5)
• Trinity Portfolio (Meb Faber)
• US Risk Parity Trend-Following (The Trend is Our Friend)
• Global Risk Parity Trend-Following (Clare, Seaton, Smith & Thomas)