GTAA Aggressive 3 (Faber GTAA AGG3)

GTAA Aggressive 3 is the most concentrated of Mebane Faber's Global Tactical Asset Allocation models, published in the February 2013 update of "A Quantitative Approach to Tactical Asset Allocation". Each month it ranks thirteen asset classes by momentum and holds the top three, a third each, but only those trading above their 10-month average; any pick below it holds Treasury bills.

The idea#

Faber's timing models hold every asset class and step aside from the ones in a downtrend. The aggressive versions add relative momentum, which he had studied in his 2010 paper "Relative Strength Strategies for Investing": asset classes that have led over the past year tend to keep leading for a while. Holding only the leaders raises the expected return. Keeping the trend filter on each pick is meant to stop a leader that has turned down from dragging the portfolio with it.

The top-three version bets the most on that ranking. It will look very different from a balanced portfolio in most years.

How it works#

At the close of the last trading day of each month:

1. Score each of the thirteen GTAA asset classes by the average of its 1-, 3-, 6-, and 12-month returns: US large value (IWD), US large momentum (PDP), US small value (IWN), US small caps (IWM, standing in for small-cap momentum), developed stocks (EFA), emerging stocks (EEM), 10-year Treasuries (IEF), foreign government bonds (BWX), US corporate bonds (LQD), long-term Treasuries (TLT), commodities (GSG), gold (GLD), and US real estate (VNQ).
2. Take the three highest scores, a third of the portfolio each.
3. For each of the three, hold the fund if its price is above its 10-month average; otherwise hold Treasury bills (BIL) in that third. The slot is not passed to the fourth-ranked asset.

What the backtest shows#

The ETF-era test starts in October 2008. Since then GTAA Aggressive 3 compounded near 9% a year with a worst drawdown of about 18%. The S&P 500 returned about 15% a year with a drawdown of about a third, and a 60/40 portfolio returned about 10% with a worst drawdown near 21%. The strategy trailed the 60/40 portfolio on return and on risk-adjusted return, and it trailed the S&P 500 on both as well.

Its years swing widely. It gained about 27% in 2020 and 28% in 2025, both ahead of the S&P 500, and lost only 1% in 2022 when the market fell 18%. But it lost 9% in 2015, a flat year for stocks, and made less than 2% in each of 2023 and 2024 while the S&P 500 rose by about a quarter each year.

Its worst drawdown came early, from May to August 2010, and it recovered by March 2011. Since the 2013 update it has returned about 8% a year.

There is no simulated history for this version. The foreign bond fund and the momentum fund have no modelled record before they launched.

When it struggles#

• Leadership changes. With three holdings chosen on past returns, a sudden rotation in markets leaves it in yesterday's winners until the next month end.
• Choppy markets. A leader that dips below its average moves a whole third to cash, often just before it recovers.
• Narrow bull markets. When US large-cap stocks lead for years, it holds them only part of the time and only as one of three picks.

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 change the number of holdings, or compare it with the steadier GTAA Aggressive 6.

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)

• Top 3 of the GTAA 13 asset classes, equal weight, as in the paper. A pick below its 10-month average goes to Treasury bills; its slot is not handed to the next-ranked asset.
• Momentum is the plain average of the 1-, 3-, 6-, and 12-month total returns, with months counted as 21 trading sessions rather than calendar month-ends.
• 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 Aggressive 3?#

It is Mebane Faber's momentum version of his thirteen-asset GTAA portfolio. It holds the three asset classes with the strongest average 1-, 3-, 6-, and 12-month returns, each only while it is above its 10-month moving average.

What ETFs does GTAA Aggressive 3 use?#

It ranks IWD, PDP, IWN, IWM, EFA, EEM, IEF, BWX, LQD, TLT, GSG, GLD, and VNQ, and uses BIL as cash.

What is the difference between GTAA Aggressive 3 and GTAA Aggressive 6?#

Both rank the same thirteen asset classes the same way. The top-three version holds a third in each pick; the top-six version holds a sixth in each, so it is more diversified and has had smaller swings.

Does GTAA Aggressive 3 still work?#

Since the 2013 update it has made money, about 8% a year, but less than a 60/40 portfolio and with long flat stretches. The live record on Tactfolio shows how it is doing now.

Related strategies

• Adaptive Asset Allocation (AAA)
• Dual Momentum: Antonacci’s Global Equities Momentum (GEM)
• Composite Dual Momentum
• GTAA Aggressive 6 (Faber GTAA AGG6)