Global Tactical — Ivy Portfolio (GTAA5)
Developed by Meb Faber · Trend Following · Low-Med Risk
Meb Faber's Ivy Portfolio is one of the most influential tactical allocation strategies ever published. Introduced in his landmark 2007 SSRN paper A Quantitative Approach to Tactical Asset Allocation (#962461) — which remains among the most downloaded papers in quantitative finance — the strategy demonstrated that a simple moving average filter applied to a diversified portfolio could meaningfully reduce drawdowns while preserving long-term returns. This finding launched the modern era of accessible, rules-based tactical investing and inspired an entire generation of systematic allocation strategies.
Faber's work drew inspiration from the endowment-style investing pioneered by David Swensen at Yale and Jack Meyer at Harvard. These institutional giants achieved exceptional long-term returns by diversifying broadly across uncorrelated asset classes — not just stocks and bonds, but also real estate, commodities, and other real assets. The key insight Faber added was that individual investors could approximate this diversified endowment approach using liquid ETFs, and then improve upon it by applying a systematic trend filter that removed positions in established downtrends.
The strategy holds five core asset classes in equal weight — US equities, international equities, intermediate bonds, commodities, and real estate — and applies a ten-month simple moving average filter to each position independently. When an asset trades above its moving average, it remains in the portfolio. When it falls below, that position moves to cash. This per-asset independence is the architectural feature that distinguishes the Ivy Portfolio from binary all-or-nothing approaches: the strategy can be partially defensive during sector-specific stress while staying invested in unaffected areas.
Traditional buy-and-hold diversification across multiple asset classes reduces portfolio volatility during normal markets but provides incomplete protection during severe bear markets when correlations across asset classes spike. The 2008 financial crisis demonstrated this clearly — stocks, real estate, and commodities all declined simultaneously, leaving only government bonds as a meaningful hedge. The Ivy Portfolio addresses this by adding a per-asset trend filter that independently evaluates whether each position should remain. This two-layered defense — diversification between assets plus trend filtering within each position — delivers substantially better drawdown protection than either approach alone.
How It Works
The Five-Asset Foundation
The portfolio targets US equities (SPY), international developed market equities (EFA), US intermediate-term bonds (IEF), commodities (DBC), and real estate investment trusts (VNQ), each receiving a twenty percent allocation. This selection captures the major return drivers in the global economy: domestic and international corporate earnings, interest income, commodity supply-demand cycles, and real estate cash flows. The equal weighting reflects an agnostic stance — rather than predicting which asset class will outperform, the strategy assumes that broad, balanced exposure across uncorrelated return streams produces the best risk-adjusted outcome over time.
The choice of five specific asset classes was not arbitrary. Faber's research showed that these five categories exhibited sufficiently low long-term correlations to provide genuine diversification benefits, while each offered positive expected real returns over full market cycles. The combination creates a portfolio that participates in global economic growth through multiple channels, reducing dependence on any single source of returns.
Per-Asset Trend Filtering
Each month, every asset is compared against its own ten-month simple moving average. When an asset's current price is above its moving average, the full twenty percent allocation is maintained. When the price falls below, the entire allocation for that asset moves to cash.
The ten-month moving average was selected by Faber as a practical monthly approximation of the widely followed 200-day moving average. This lookback period is long enough to filter out normal market noise and short-term pullbacks, but short enough to respond to genuine trend changes within a few months of a major turning point. Faber's research demonstrated that the exact lookback period is not critical — moving averages between eight and twelve months produced similar results, suggesting the approach captures a robust underlying phenomenon rather than a fragile statistical artifact.
The per-asset independence is the strategy's defining architectural feature. Unlike binary strategies that move the entire portfolio to cash based on a single signal, the Ivy Portfolio can hold any combination from zero to five positions at any time. During a sector-specific decline — such as a commodity crash that doesn't affect bonds or equities — only the affected position moves to cash while the other four remain invested. During a broad market crisis, multiple positions may move to cash simultaneously, automatically increasing the portfolio's defensive posture proportionally to the severity and breadth of the decline.
Rebalancing and Turnover
The strategy rebalances monthly, but only adjusts positions where the trend signal has changed. If all five assets remain above their moving averages from month to month, no trades are executed. This conditional rebalancing produces remarkably low turnover for a tactical strategy — in most years, only a handful of transitions occur as individual assets cross above or below their trend lines.
The low turnover makes the strategy exceptionally practical for taxable accounts and reduces the impact of transaction costs on long-term performance. Most transitions involve moving a single position to or from cash, keeping each trade small relative to total portfolio value. This contrasts sharply with concentrated momentum strategies that may rotate the entire portfolio between assets each month, generating substantial friction costs and tax consequences.
Explore Global Tactical — Ivy Portfolio (GTAA5)
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