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Guru Asset Allocation Clone
This strategy clones the top long short and asset allocation (moderate and conservative) funds using ValidFi's proprietary Realtime Asset Allocation analysis technique.
This strategy utilizes ValidFi's Realtime Asset Allocation (RAA) technique to analyze the asset allocation of major asset classes for the top asset allocation funds. The strategy has the following steps:
- At the end of each adjustment period (such as monthly or quarterly), rank top performing asset allocation funds based on their performance in the past one year period. The ranking is based on a price momentum score similar to FundX Upgrading or Sharpe ratio. Choose top 2 or top 1 funds.
- For each fund selected, call RAA to derive sset weights for major asset class (represented by index funds or ETFs). Take the average weights from these top funds.
- Invest (or rebalance) the weights of those asset classes based on the weights derived from Step 2.
- Repeat 1.
The assets (components) are similar to Index IQ's Hedge (QAI) underlying components. Because some of the ETFs used in QAI have short history, we use similar index funds instead for the purpose of back testing in a longer period. Thus, in practice, users could use the corresponding ETFs instead of index funds to avoid the short term redemption fee.
The components are
| BND | Vanguard Ttl Bnd Mkt ETF (VBMFX) |
| SHV | iShares Lehman Short Treasury Bond ETF (VFISX) |
| HYG | iShares iBoxx $ High Yield Corporate Bond Fund (VWEHX) |
| VWO | Vanguard Emerging Markets ETF (VEIEX) |
| DBV | PowerShares DB G10 Currency Harvest Fund (TGBAX) |
| CFT | iShares Lehman Credit Bond Fund (VFICX) |
| TIP | iShares Lehman TIPS Bond Fund (VIPSX) |
| FXE | CurrencyShares Euro Trust (TGBAX) |
| VNQ | Vanguard REIT ETF (VGSIX) |
| DJP | iPath Dow Jones-AIG Commodity Index Total Return ETN (QRAAX) |
| EFA | iShares MSCI EAFE (VGSTX) |
| PCY | PowerShares Emerging Markets Sovereign Debt Portfolio (TGBAX) |
| IWM | iShares Russell 2000 Index Fund (IWM) |
This strategy does not take the short.
See Also
ValidFi's RAA technique is based on research results published by
- Jasmina HasanHodzic and Andrew Lo, "Can Hedge-Fund Returns Be Replicated?: The Linear Case". MIT Research Paper. August 16, 2006.
- Lars Jaeger, "Alternative Beta Strategies and Hedge Fund Replication". Wiley, November, 2008.