GTAA Aggressive 6 (Faber GTAA AGG6)

GTAA Aggressive 6 is the headline aggressive model in Mebane Faber's February 2013 update of "A Quantitative Approach to Tactical Asset Allocation". Each month it ranks thirteen asset classes by momentum and holds the top six in equal parts, each only while it trades above its 10-month average; any pick below it holds Treasury bills.

The idea#

Faber's timing models own every asset class and step aside from those in a downtrend. The aggressive models also use relative momentum, from his 2010 paper "Relative Strength Strategies for Investing": asset classes that have led recently tend to keep leading. Holding the stronger half of the list should earn more than holding all of it, and the trend filter on each pick should limit the damage when leaders turn down.

With six holdings instead of three, this version keeps more diversification. It usually holds a mix of stocks, bonds, and real assets rather than a single theme.

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 six highest scores, a sixth of the portfolio each.
3. For each of the six, hold the fund if its price is above its 10-month average; otherwise hold Treasury bills (BIL) in that sixth.

What the backtest shows#

The ETF-era test starts in October 2008. Since then GTAA Aggressive 6 compounded near 10% a year with a worst drawdown of about 16%. The S&P 500 returned about 15% a year but fell about a third at its worst, and a 60/40 portfolio returned about 10% with a worst drawdown near 21%. The strategy edged out the S&P 500 on risk-adjusted return but trailed the 60/40 portfolio slightly on both return and risk-adjusted return.

It held up well in 2022, losing 7% while the S&P 500 fell 18%, and it gained in 2011 when the market was nearly flat. It lost 9% in 2015, and in 2023 it was flat while the S&P 500 rose 26%.

Its worst drawdown was slow rather than sharp. It ran for two years, from November 2021 to November 2023, and the portfolio did not regain its high until November 2024. Since the 2013 update it has returned about 8.5% a year, with a better risk-adjusted return than the top-three version.

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#

• Everything falling slowly. In a drawn-out decline like 2022, momentum and trend signals lag, and several of the six picks can lose before they drop below their averages.
• Strong US stock markets. Six slots spread across thirteen assets leave little room for US large caps when they lead.
• Sideways markets. Picks that cross their averages back and forth cause repeated small losses.

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 try a different number of holdings, or compare it with the more concentrated GTAA Aggressive 3 and the fixed-weight GTAA 13.

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 6 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 6?#

It is Mebane Faber's momentum version of his thirteen-asset GTAA portfolio. It holds the six 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 6 use?#

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

How is GTAA Aggressive 6 different from GTAA 5?#

GTAA 5 holds five asset classes at fixed weights and only times them. GTAA Aggressive 6 ranks a longer list of thirteen and holds the six strongest, so it also chooses between asset classes.

Does GTAA Aggressive 6 still work?#

Since the 2013 update it has returned about 8.5% a year with a worst drawdown near 16%. Over the whole ETF-era test it trailed a 60/40 portfolio slightly. 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 3 (Faber GTAA AGG3)