Asset Class Trend-Following

The three-gate gauntlet · genuine only if it clears all three and survives adversarial refutation

Gate 1

Survivorship-free

n/a

not a factor universe

Gate 2

Placebo ≥ P95

not run

Gate 3

Cost-aware net

RF +13.47

positive, not certified

Failedfailed refutation

Worst 12-month leg (RF)-1.00

−1.00 floor0

Every strategy here — winners included — loses in its worst 12 months. Depth is honest context, not the verdict.

Did not clear our screen — no tradeable net edge survived modelled costs.

Faber's tactical asset-allocation rule applies a simple time-series trend filter (hold when price is above its long moving average, step aside when below) to reduce drawdowns in a broad portfolio. In this audit we tested the time-series trend rule as a proxy on SPY only.

What we found

On this SPY proxy the rule did not add value: passive buy-and-hold beat it by roughly four times, and its worst year had a negative risk-adjusted result (worst-year RF -1.0). What remains is reduced market exposure and timing rather than genuine alpha. We also did not fully port the original multi-asset-class version, so this is a partial, single-instrument read of the idea and not a verdict on the full portfolio construction from the paper.

How we tested it

2005–2026 test windowmodelled liquidity-aware costssurvivorship na

Data: the index (e.g. SPY), daily, over the modern test window. Realistic modelled costs.
Placebo / robustness test: real result vs random baskets or shuffled signals (real vs the 95th percentile of random)

Source: Faber (2007), "A Quantitative Approach to Tactical Asset Allocation", J. Wealth Management
Read the paper ↗

← The Academic Audit — all 54 studies

Research, not investment advice. “Validated” factor-legs are market-neutral diversifying building blocks with a losing worst year — none is a standalone tradeable strategy. Metrics are cost-aware and modelled (not live fills); the 2005–2026 test window is out-of-sample versus the source paper. Dollar figures are not returns and are omitted by design.