August 2015 hardly provided a calm backdrop for the launch of a live account using my simple, purely mechanical (rules-based), asset allocation system. Markets around the world experienced heightened volatility in the wake of the Chinese sell-off and the account is down 3.66 per cent year-to-date. Nevertheless, compared with the 6.04 per cent fall for the MSCI World Index (USD Net ticker .MIWO00000NUS), which is the chosen benchmark for my global strategy, the (very) early signs look good.
The concepts behind my system are simple: momentum and diversification. The aim is to invest in markets that are moving up and to exit those that are going nowhere or down. The object is to provide an equivalent or superior return to the benchmark with lower volatility and peak-to-trough drawdowns.
This will hopefully be achieved by investing in risk assets such as stocks and commodities while their momentum (return) is positive and retreating to the reserve asset (cash/bonds) during periods of market stress.