May Tactical Allocation Games

Time for my monthly allocations game.

OK, first things first - always bear in mind that these long/short allocation settings are only a game: the choices made are purely those thrown up by rather crude mathematical models. Those models measure four important aspects of money in each market, track  how they are changing, and try to work out how the relative movements have been related in the past to relative movements in asset prices. Each month, I make long and short choices, which are then kept untraded for three months. It's not rocket science and it certainly isn't judgement.  Nor, I should add, do the results influence portfolios I'm involved with. Follow it entirely at your own peril. 

When I aggregate my monetary conditions indicators for the US, Eurozone and NE Asia I produce the  global monetary conditions indicator you see below.  It tells us we're past the time of maximum positive improvement in conditions,  but we're not yet looking at a downward inflection point. There's no simple relationship between global markets and these conditions, but I keep an eye on this because I do feel that eventually sour monetary conditions will find themselves reflected in markets.  

This month's allocations - to be kept until end-July are: 

Developed currencies: Long Euro, Short Yen.  This is the same as last month, which came in up 2% on the month. This model is up 3.2% on the year. 

Developed equity markets: Long Japan, Short Europe. Last month's Long US, Short Europe didn't exactly work out, I was down 0.6% on month, up 6.2% on the year, or 9.2% with currency model. Still my long only choices were up 22.8% YoY, or 26.5% with currency model added. That's compared with an average for the indexes I'm choosing between of 9.8%, or 15.9% for the MS World Free Index, so I forgive myself.

NE Asia: Long Japan, Short Korea.  No, I don't get it either. What's more, the NE Asia model has flunked so badly during the last year that I've had a very sticky visit from some trustees.  Perhaps I should take in washing? 

SE Asia: Long Malaysia, Short Indonesia. Nothing to report on last month's l/s position, since the model was busy short-circuiting itself, going both long and short Indonesia. Still, the long position was up 3.8% on the month, and 28.6% on the year, which is slightly better than the market average of 23.2%. 

BRICS: I was long Russia last month, and I'm doing the same again this month. It didn't work last month (the Micex was down 4%), and it means that for the year, I'm up only 4.8%, against a market average of 9.2%.