A Quantitative Approach to Tactical Asset Allocation: GTAA (5) with Monthly Rebalancing by Mark Reeve

Mark Reeve INVESTOR

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Hi All,

I read a paper today titled "A Quantitative Approach to Tactical Asset Allocation" by Mebane Faber, first published in May 2006. It's basis (implemented below) is a simple Global Asset Allocation Buy &Hold portfolio, against which we should measure the performance of the various iterations of his Global Tactical Asset Allocation Models (to follow).

As expected for a global diversified portfolio (B&H) it yields a sharpe ratio in the order of 0.4 (owning individual "Risky" assets usually returns a sharpe around 0.2). It appeasrs the previous decade has been quite extraordinary for the S&P, with a sharpe=0.7!

This is my first attempt (as a hobbyist programmer) at an algorithm on QuantConnect, using the structure provided in the AlgorithmFramework, so questions, comments & criticisms are all welcome!

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Mark Reeve

Accepted Answer

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Derek Melchin

STAFF Pro ,

Hi Mark,

Great first attempt! Here are a few small improvements to consider:

We can create our list of symbols using list comprehension to keep Initialize dry
Rebalance at the open to avoid stale prices and disproportionate weights
Set the Insight duration to be the same as the backtest duration

Best,
Derek Melchin

Mark Reeve

5.8k Pro ,

Thanks Derek!

Is this what you mean by using list comprehension and insight duration (Refer attached backtest)?

What do you mean when you say to keep Initialize "dry"?

Also, I couldnt get the daterules/timerules function to work for me with PC.... eg,

self.SetPortfolioConstruction(EqualWeightingPortfolioConstructionModel(self.DateRules.MonthStart(), self.TimeRules.AfterMarketOpen('SPY', 5)) )

Can you see my obvious error?

Many Thanks,

Mark

Derek Melchin

STAFF Pro ,

Hi Mark,

Great job! This is exactly what I mean by using list comprehension and changing the insight duration.

"DRY" is an acronym for "Don't Repeat Yourself". By using list comprehension in Initialize like this, we type `Symbol.Create(...)` once instead of 5 times.

The EqualWeightingPortfolioConstructionModel constructor can't take both a DateRules and TimeRules parameter. Instead, we can accomplish monthly rebalancing after the open by passing the construct a function.

self.SetPortfolioConstruction(EqualWeightingPortfolioConstructionModel(self.RebalanceFunction))

self.lastRebalanceMonth = -1

We then define the rebalancing function as

def RebalanceFunction(self, time):

    if self.Time.hour == 9 and self.Time.minute == 31 and self.Time.month != self.lastRebalanceMonth:

        self.lastRebalanceMonth = self.Time.month

        return time

See the attached algorithm for a working solution.

Best,
Derek Melchin

Mark Reeve INVESTOR

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