Stoken Tactical Adaptive Strategy
STA employs an enhanced version of the Active Combined Asset strategy outlined in Dick Stoken’s book, Survival of the Fittest for Investors. This tactical asset allocation strategy is designed to perform well during all market and geopolitical environments, and to protect investors from significant capital depletion during sustained bear markets. STA’s goal is to preserve and grow capital by outperforming the S&P 500 over complete market cycles, while producing lower-than-market risk. Instead of traditional buy-and-hold portfolios with set allocations, STA attempts to adapt and react to markets as they evolve. The strategy is designed to recognize changing market conditions early, find trends as they develop, and react by shifting asset allocations to be as prepared as possible for what lies ahead.
Research
Free markets use the same algorithm as evolution. They can be viewed as complex adaptive systems that are governed by trends. Using complex adaptive systems as a framework, STA utilizes agent-based modeling to find market-based patterns. The strategy uses three key principles of complex adaptive systems: Variation – By including four diverse asset classes, three that are risky and one that is defensive, to give investors a greater chance of having an asset class that “fits” the then-current environment Fluctuation – By applying an algorithm designed to best protect investors from large capital depletions during sustained bear markets by defensively moving out of risky assets Punctuated Equilibrium – By using a methodology to take advantage of profit opportunities during periods of relative order and to gainfully navigate through periods of extreme chaos and disruption.
Approach
STA provides low correlation to traditional investment strategies and offers returns independent of market direction. Decisions are made using a systematic model-based approach and are not based on current market noise, emotions or instincts to follow the crowd. STA has the flexibility to move into mostly defensive assets (bond ETFs) when risk is perceived to be at its highest, enabling the portfolio to avoid significant losses. STA utilizes low-fee ETFs to access asset classes, with the goal of minimizing investment costs and maximizing returns. The investment strategy is grounded in tested theory and real-world experience, with proven research and analytical rigor forming the foundation of our approach. We practice disciplined investment and portfolio implementation, applying a consistent, unemotional and systematic process.
Allocation Discipline
STA is a long-only, tactical strategy that uses ETFs to gain exposures to four distinct asset classes: Equities, Real Estate, Gold and US Treasuries (long and short duration). Allocations to each risky asset class range from 0% to 60%, depending on their performance and relative strength, as determined by a quantitative, model-based algorithm. The algorithm uses price channel breakouts to choose between pairs of opposing risk and defensive asset classes. Core ETFs that may be used in the strategy include: SPY, VNQ, GLD, SHY, IEI, EGG, TLT, and TIP. Additional ETFs that represent up-and-coming global markets, such as China, will be considered based on currency, political and systemic risk levels. Marginal positions in commodity and/or smart beta ETFs may be used to generate additional alpha. The strategy trades less than five times per year on average.