Equity protection through "risk on" / "risk off" market timing model.


Alpha Asset Allocation investment strategies gives great emphasize on risk management, our strongest equity protection algorithm is the market timing model (or MTM). This model is basically a "risk on" / "risk off" model which sells the sectors and goes to cash (or treasuries) in the event of unfavorable market conditions. The model only reacts to major bear market conditions (like the 2008 crises) and is activated once in every few years. In the last 20 years it was in "risk off" mode only about 10% of the time which leaves us 90% of the time benefiting from the exposure to the market. 

In the graph below you can see the market and different sector performance during 2008 crash, You can see that while the market (symbol:^GSPC) return was about -40% sector returns varied from -25% to -60% , not even one sector stayed on a positive territory during this wild meltdown. In times like this the market timing algorithm signals "risk off" - go to safety of low risk instruments.


Market Timing model building blocks

1. Market Price resistance and support lines

2. Bond market gauge

3. Credit risk

4. Market Volatility and investors sentiment

The model is an adaptive non linear algorithm which uses those building blocks to decide when to shift  from high risk to low risk assets and back. In the portfolio equity graph below you can see the "risk off" periods highlighted in yellow, in those periods the equity curve is horizontal indicating that the strategy is holding cash. 


  • Model :  Market timing
  • Objective : Reduce portfolio draw-down risk.
  • Time frame : months to years