Tactical Asset Allocation

263 Pages·2011·16.14 MB·English

Tactical Asset Allocation
Positioning, Proposed Actions, and Performance

TAA Team:
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]

Portfolio Strategy & Execution
Teacher Retirement System of Texas
Table of Contents

Executive Summary

Tab 1:
• Model Trades and Targets
• Target Positioning
• TAA Decision Tree

Tab 2:
• Pair Model Signal Summary Page
• Stacked Bar Charts
• Individual Model Snapshots and Diagnostics

Tab 3:
• SPN Positioning

Tab 4:
• TRS Tactical Asset Allocation Performance Attribution

Tab 5:
• Directional hedge Fund Replication Performance Update
• QVF Update
• Commodities

Tab 6:
• Portfolio Characteristics Dislocated Credit Portfolio

Tab 7:
• Small vs. Large 2.0
• Commodities vs. Stocks 2.0
• Growth vs. Value 2.0
• EM vs. EAFE 2.0
• Stocks vs. Bonds 2.0

Tab 8:
• Dynamic Factor Paper Portfolio

Tab 9:
• Model Star Reports

Tab 10:
• Appendix
Memo: TAA Executive Summary

TRS Tactical Asset Allocation Team October 2011

To: Britt Harris & Jerry Albright

Cc:

From: TAA Team

Re: Monthly Tactical Asset Allocation

October Target Weighting
This month, our models have moved from a recommended underweight to equities of -.98% to an overweight of
.74% due to falling oil prices and decelerating deterioration in global leading indicators. Within equities we target
an OW to Growth of 1.42% and an UW to Value of -.38%. Additionally, we target an underweight to Small Cap of -
1.1%. In international equities, we target an overweight to EM by 1.0% and an underweight to EAFE of -.38%. The
models prefer to be underweight treasuries by -.77%, however, at the trust level we are targeting an underweight
of -1.15% due to a TILT. Our models also prefer an underweight of TIPS, but at the trust level we are positioned
with an overweight to TIPS in order to deploy cash available from our Real Assets underweight. In commodities,
our models recommend an overweight of .41% on top of a .70% overweight to precious metals funded by cash and
treasuries.

Modified Models- (Tab 7)
1. Small vs. Large
2. Commodities vs. Stocks
3. Other Retool Presentations (Just in case you missed them in previous months)

Performance September Fiscal Year
1. SPN: -107 bps -80 bps
2. TAA: -76 bps (Craig M.) -5 bps (Craig M.)
3. QVF: -315 bps 74 bps
4. Commodities: -.16 bps 125 bps

Other

1. Directional Hedge Fund Replication Basket (Tab 4)
As of 10-07-2011, this strategy is up 201 basis points.

2. Dynamic Factor Paper Portfolio (Tab 8)
Moving forward, we will be tracking our desired positioning and performance as if our Classic TAA models
and Dynamic Factor models shared a 50/50 load in our TAA target weighting. Tab 8 includes a Model
Signal Summary, Targets and Trades Report, and individual Model Diagnostics for each Dynamic Factor
model.

We hope you find this information helpful and look forward to speaking with you Next Friday.
Sincerely,

TAA Team
TTaabb 11
TRS Tactical Asset Allocation

Targets and Trades
September 30, 2011
Positioning, Targets, and Trades
TOTAL TRUST TACTICAL ASSET ALLOCATION PASSIVE ASSET ALLOCATION TOTAL TRUST
 Policy  Current Trust  Current  Policy  Current Passive 
Model TAA Tgt. TAA Sleeve Adjustments                                                Final TAA Tgt. TAA Trades Adjustments & TILTS Passive Tgt. Passive Trades Trust Target
Neutral Positioning TAA Pos. Neutral Positioning
Absolute  Relative  Relative  Absolute  Relative  SPN Implied  Absolute  Relative  Absolute  Relative  Absolute  Relative  Absolute  Relative 
2012 BM SPN Adjust STAR Alarms      Star Adjust Other  Adjust R Buy/Sell % ($B) 2012 BM R PE Adjust D‐HF Adjust SV HF Adjust RE Adjust TILTS Buy/Sell % ($B)
Weight Weight Weight Weight Weight Target Wgt. Weight Weight Weight Weight Wgt. Wgt. Wgt. Wgt.
LLaarrggee CCaapp VVaalluuee 99.00%% 99.77%% 00.77%% ‐00.2266%% 88.44%% ‐00.6644%% 22.00%% 00.2266%% CCAA vss BB 00.00%% 00.00%% 88.66%% ‐00.3388%% SSeellll ‐00.1122%% ‐$$00.1122 99.00%% 1100.00%% 11.00%% 99.00%% 00.0000%% SSeellll ‐00.9966%% ‐$$00.9988 88.66%% ‐00.3388%%
Large Cap Growth 9.0% 11.0% 2.0% 3.33% 10.6% 1.64% ‐0.6% ‐0.23% CA vs B 0.0% 0.0% 10.4% 1.42% Sell ‐1.91% ‐$1.94 9.0% 7.7% ‐1.3% 9.0% 0.00% Buy 1.28% $1.31 10.4% 1.42%
Small Cap 2.0% 3.4% 1.4% 0.05% 0.9% ‐1.12% ‐0.9% 0.02% CA vs B 0.0% 0.0% 0.9% ‐1.10% Sell ‐1.15% ‐$1.17 2.0% 2.4% 0.4% 2.0% 0.00% Sell ‐0.44% ‐$0.44 0.9% ‐1.10%
EAFE + CA 15.0% 13.9% ‐1.1% ‐1.44% 14.7% ‐0.34% ‐0.8% ‐0.04% CA vs B 0.0% 0.0% 14.6% ‐0.38% Buy 1.07% $1.08 15.0% 15.4% 0.4% 15.0% 0.00% Sell ‐0.42% ‐$0.42 14.6% ‐0.38%
Emerging Markets 10.0% 11.9% 1.9% 1.25% 11.2% 1.19% ‐0.4% ‐0.16% CA vs B, TL vs S 0.0% 0.0% 11.0% 1.04% Sell ‐0.21% ‐$0.22 10.0% 9.9% ‐0.1% 10.0% 0.00% Buy 0.08% $0.08 11.0% 1.04%
Hedge Funds (Directional) 5.0% 0.0% ‐5.0% 0.00% 5.0% 0.00% N/A N/A N/A N/A N/A 5.0% 0.00% N/A 0.00% $0.00 5.0% 1.8% ‐3.2% ‐0.78% 4.2% ‐0.78% N/A 2.37% $2.41 4.2% ‐0.78%
Private Equity 12.0% 10.9% ‐1.1% 0.00% 12.0% 0.00% N/A N/A N/A N/A N/A 12.0% 0.00% N/A 0.00% $0.00 12.0% 11.7% ‐0.3% ‐0.35% 11.7% ‐0.35% N/A 0.00% $0.00 11.7% ‐0.35%
Public Equity Sub‐Total 45.0% 49.8% 4.8% 2.92% 45.7% 0.74% ‐0.7% 45.6% 0.60% Sell ‐2.33% ‐$2.36 45.0% 45.5% 0.5%   45.0% 0.0% Sell ‐0.45% ‐$0.46 45.6% 0.60%
Global Equity Sub‐Total 62.0% 60.7% ‐1.3% 2.92% 62.7% 0.74% ‐0.7% 62.6% 0.60% Sell ‐2.3% ‐$2.36 62.0% 59.0% ‐3.0% 60.9% ‐1.1% Buy 1.92% $1.95 61.5% ‐0.53%
Hedge Funds (Stable Value) 4.0% 4.5% 0.5% 0.00% 4.0% 0.00% N/A N/A N/A N/A N/A 4.0% 0.00% N/A 0.00% $0.00 4.0% 2.7% ‐1.3% ‐1.30% 2.7% ‐1.30% N/A 0.00% $0.00 2.7% ‐1.30%
Long Treasuries 13.0% 10.7% ‐2.3% ‐3.57% 12.2% ‐0.77% 0.4% 0.12% None 0.0% 0.0% 12.3% ‐0.65% Buy 2.92% $2.97 13.0% 13.3% 0.3% ‐0.50% 12.5% ‐0.50% Sell ‐0.76% ‐$0.77 11.8% ‐1.15%
Credit 0.0% 3.2% 3.2% 0.00% 0.0% 0.00% 0.0% 0.00% CA vs B 0.0% 0.0% 0.0% 0.00% N/A 0.00% $0.00 0.0% 2.4% 2.4% 0.35% 0.78% 1.30% 2.4% 2.43% N/A 0.00% $0.00 2.4% 2.43%
Cash 1.0% 0.9% ‐0.1% 0.00% 1.0% 0.00% 0.0% 0.00% N/A N/A N/A 1.0% 0.00% N/A 0.00% $0.00 1.0% 3.8% 2.8% ‐0.20% 0.8% ‐0.20% Spend ‐2.98% ‐$3.03 0.8% ‐0.20%
Stable Value Sub‐Total 18.0% 19.3% 1.3% ‐3.57% 17.2% ‐0.77% 0.4% 17.3% ‐0.65% Buy 2.92% $2.97 18.0% 22.2% 4.2% 18.4% 0.4% Sell ‐3.74% ‐$3.80 17.8% ‐0.23%
US TIPS 5.0% 5.1% 0.1% 0.00% 4.6% ‐0.41% 0.2% 0.06% CA vs B 0.0% 0.0% 4.6% ‐0.35% Sell ‐0.35% ‐$0.36 5.0% 5.1% 0.1% 1.33% 6.3% 1.33% Buy 1.26% $1.28 6.0% 0.98%
REITS 2.0% 1.8% ‐0.2% 0.00% 2.0% 0.00% 0.0% 0.00% None 0.0% 0.0% 2.0% 0.00% N/A 0.00% $0.00 2.0% 1.8% ‐0.2% 2.0% 0.00% Buy 0.18% $0.18 2.0% 0.00%
CCoommmmooddiittiieess 00..00%% 22..77%% 22..77%% 00..0000%% 00..44%% 00..4455%% 00..11%% ‐00..0033%% CCAA vvss BB 00..00%% 00..00%% 00..44%% 00..4411%% BBuuyy 00..4411%% $$00..4422 00..00%% 22..33%% 22..33%% 11..3300%% 00..7700%% 22..00%% 22..0000%% SSeellll ‐00..2277%% ‐$$00..2277 22..44%% 22..4411%%
Real Assets 13.0% 10.4% ‐2.6% 0.00% 13.0% 0.00% N/A N/A N/A N/A N/A 13.0% 0.00% N/A 0.00% $0.00 13.0% 10.4% ‐2.6% ‐2.63% 10.4% ‐2.63% N/A 0.00% $0.00 10.4% ‐2.63%
" "
Real Return Sub‐Total 20.0% 20.0% 0.0% 0.00% 20.0% 0.03% 0.3% 20.1% 0.06% Buy 0.06% $0.06 20.0% 19.5% ‐0.5% 20.7% 0.70% Buy 1.17% $1.19 20.8% 0.8%
Total Fund 100% 100.0% 0.0% ‐0.7% 100% 0.0% 0.0% 0.0% 0.0% 0.0% 100% 0.00% 100% 101% 0.7% 0.00% 0.00% 0.00% 0.00% 0.00% 100.0% 0.0% 100% 0.0%
TAA Key
Initial Model Target Weight: Desired active positioning of Flagship TAA Model Suite
SPN Implied Target Weight: Derived by 1) converting SPN active weight recommendations in asset space into "Implied Pair‐Model" signals. 2) Converting these "Implied Pair‐Model" signals back into active weight recommendations using TRS' conversion matrix.
SPN Adjust: The adjustment that occurs when giving a 10% weight to the SPN "Implied Pair‐Model" signals.
Star Alarms: CW= Cusum Warning  CA= Cusum Alarm  TH=Trend Deviation High  TL= Trend Deviation Low None= No Alarm 
Star Adjust: When alarms are triggered, this is the adjustment made. 
Other Adjust: Other decisions made by the TAA to modify over/underweights
Passive Keyy
PE Adjustment: Use of cash available from structural underweight
D‐ HF Adjustment: Use of cash available from structural underweight
SV HF Adjustment:Use of cash available from structural underweight
RE Adjustment: Use of cash available from structural underweight
TILTS‐ This column reflects current opportunstic invesments and their funding vehicles.
TRS Tactical Asset Allocation 
Target Positioning
September 30, 2011
Large Underweight Moderate Underweight Small Underweight Neutral Small Overweight Moderate Overweight Large Overweight
Asset Class
< ‐2.5% < ‐1.5% < ‐0.5% ‐0.5% ‐ 0.5% > 0.5% > 1.5% > 2.5%
GLOBAL EQUITY
PUBLIC EQUITY
US Large Cap
US Large Cap Value
US Large Cap Growth
US Small Cap
EAFE + CA
Emerging Markets
Directional Hedge Funds
Private Equity
STABLE VALUE
Stable Value Hedge Funds
Long Treasuries
CCrreeddiitt ((AAllll SSpreadd PProdductt))
Cash
REAL RETURN
US TIPS
REITS 0
Commodities
Real Assets
     =October 2011 Final Target       =September 2011 Final Target
TRS Tactical Asset Allocation
Decision Tree
9/30/2011
45.0% 18%
Global Stocks vs. Global Bonds
11..22
46.2% IR: 1.6 α: 0.70% 16.8%
Considered in TAA Adjustments
0.0% 2% 45% 46.2% 18% 1%
Commodities vs. Global Stocks Global Bonds vs. US Cash
0.4 ‐1.0
00..44%% IR: 0.0 α: 0.01% 4455..77%% IR: 1.0 α: 0.03%
Considered in TAA Adjustments
10.2% 10% 20% 20.3% 15.2% 15% 20% 19.3% 12.1% 13% 5% 4.7%
EAFE + CN 
EM Stocks vs. US Stocks Stocks vs. US Stocks US Treasuries vs. US TIPS
1.0 ‐0.6 ‐1.4
11.2% IR: α: 19.3% 14.6% IR: 0.5 α: 0.07% 19.9% + = 19.9% 12.1% IR: 1.9 α: 0.27% 4.7%
CCoonnssiiddeerreedd iinn TTAAAA AAddjjuussttmmeennttss
11.2% 10% 15% 14.6% 2.0% 2% 18% 17.9% 0.0% 0% 13%
EM Stocks vs. EASFtEo c+k CsN  US SSmtoaclkl sCap  vs. US LSatorgcek sCap  HY Bonds vs. US Treauries
0.0 ‐1.1 0.7
11.2% IR: 1.5 α: 0.02% 14.7% 0.9% IR: 0.8 α: 0.10% 19.0% IR: 1.6 α: 0.18%
Considered in TAA Adjustments
99.55%% 99%% 99%% 99.55%% 00%% 2255%%
US Growth  US Value 
Stocks vs. Stocks HY Bonds vs. US Stocks
1.1 ‐1.4
10.6% IR: 0.4 α: ‐0.06% 8.4% IR: 0.8 α: 0.02%
Key:
New Allocation
Policy Neutral Wgt.
Asset Class A vs. Asset Class B MAa xo vPerre fBer  <‐‐‐‐‐‐‐ Neutral ‐‐‐‐‐‐‐> Maxo vPerre fAer B 
Model Signal 5 4 3 2 1 0 ‐1 ‐2 ‐3 ‐4 ‐5
Inf. Ratio Annual Alpha
Resulting Allocation Final Allocation
TTaabb 22
TRS Tactical Asset Allocation
Pair Model Signal Summary
September 30, 2011
Factor Information TAA Model Signals SPN Implied Model Signals Star Reports Performance
 Current   Previous   Contrib.   Current   Previous  BM1           vs  Model vs. 
Factor Type Factor & Weight Preference  Chg.   SPN  Preference  Chg.  Roll IR LTM Alpha
Signal  Signal  to Chg  Signal  Signal  BM2 50/50 BM
Decision 1: Stocks vs. Bonds Pro Stocks 1.2 ‐0.6 1.8 SPN Average Pro Bonds ‐0.6 ‐2.1 1.5 ALARM ALARM 1.6 0.70%
Macro Consumer Sentiment Composite (10%) Pro Stocks 5.0 5.0 0.0 0.0 Barclays Pro Bonds ‐3.3 ‐7.6 4.3 D 3 R 9
Macro Crude Oil Momentum (20%) No Preference 0.0 ‐5.0 5.0 1.0 Black Rock Pro Bonds ‐0.2 0.7 ‐0.9 Cusum A
Rates US Gen 10Yr Yld (10%) Pro Stocks 5.0 5.0 0.0 0.0 JP Morgan Pro Stocks 1.6 3.0 ‐1.4
Valuation Rel EPS Yld (10%) Pro Stocks 5.0 5.0 0.0 0.0 M. Stanley Pro Stocks 2.7 3.2 ‐0.5
Macro Non‐Financial Profits % GDP (25%) Pro Bonds ‐3.3 ‐3.6 0.3 0.1 N. Berman Pro Bonds ‐3.5 ‐7.1 3.6
Risk STDEV of FWD Earnings Estimates (5%) Pro Stocks 5.0 5.0 0.0 0.0
Macro Industrial Production Diffusion (5%) Pro Stocks 5.0 5.0 0.0 0.0
Macro GS Global Leading Indicator (15%) No Preference 0.0 ‐5.0 5.0 0.8
Decision 2: Commodities vs. Stocks Pro Comdtys 0.4 0.3 0.2 SPN Average Pro Comdtys 0.1 0.2 ‐0.1 No Alarm No Alarm 0.0 0.01%
Rates High Yield Spread (10%) Pro Comdtys 2.0 1.0 1.0 0.1 Barclays Pro Comdtys 2.4 1.2 1.2 D 3 F 5
Valuation Stocks EPS Yield (10%) Pro Stocks ‐2.0 ‐2.0 0.0 0.0 Black Rock Pro Comdtys 2.2 2.3 ‐0.1
Macro EM GDP Forecast (15%) Pro Comdtys 0.3 0.4 ‐0.1 0.0 JP Morgan Pro Stocks ‐0.1 ‐0.6 0.5
Technical Oil Equity Markets (10%) Pro Comdtys 0.8 0.8 0.0 0.0 M. Stanley Pro Stocks ‐1.5 0.0 ‐1.5
Macro  Compiled Volatility ‐ EM (20%) Pro Comdtys 0.4 0.4 0.0 0.0 N. Berman Pro Stocks ‐0.3 0.1 ‐0.5
Macro Compiled Housing Starts ‐ EAFE (20%) Pro Comdtys 0.6 0.3 0.2 0.0
Macro Percent of Commodities in Contango (15%) Pro Comdtys 0.9 0.7 0.2 0.0
Decision 3: EM Equity vs. Developed Equity Pro Dev 0.0 ‐0.1 0.1 SPN Average Pro EM 0.1 0.1 0.0 No Alarm No Alarm 1.5 0.02%
Valuation Relative P/E (5%) No Preference 0.0 0.0 0.0 0.0 Barclays Pro EM 0.2 ‐0.4 0.5 F 3 R 5
Rates WGBI Yield (15%) Pro EM 2.7 2.2 0.5 0.1 Black Rock Pro EM 2.3 1.5 0.8
Macro Dollar Index (15%) Pro EM 5.0 5.0 0.0 0.0 JP Morgan Pro EM 1.1 0.4 0.7
Rates EM/EAFE Policy Rates (5%) Pro Dev ‐1.3 ‐1.3 0.0 0.0 M. Stanley Pro EM 0.3 0.1 0.2
Risk Compiled Volatility ‐ EM (10%) Pro Dev ‐5.0 ‐3.2 ‐1.8 ‐0.2 N. Berman Pro Dev ‐1.1 0.4 ‐1.5
Valuation Emerging Market Discount Rate (15%) Pro Dev ‐2.3 ‐2.6 0.3 0.0
Macro GSCI Agric TR (20%) Pro Dev 0.0 ‐2.1 2.0 0.4
Technical EM/EAFE Total Stocks Rise / Fall Ratio (15%) Pro Dev ‐1.7 0.1 ‐1.8 ‐0.3
Decision 4: EM Equity vs. US Equity Pro EM 1.0 1.2 ‐0.1 SPN Average Pro US ‐0.3 ‐0.1 ‐0.2 ALARM ALARM 1.5 ‐0.06%
Valuation US vs EM ROE Ratio (25%) Pro EM 0.8 0.8 0.0 0.0 Barclays Pro US ‐0.9 ‐0.9 0.0 F 2 D 2
Valuation Implied Equity Risk Premium (30%) Pro EM 0.3 2.3 ‐2.1 ‐0.6 Black Rock Pro US ‐0.4 ‐0.5 0.1 Cusum A
Technical KOSPI 12M Change vs. US Small Cap (30%) Pro EM 1.9 0.4 1.5 0.4 JP Morgan Pro EM 0.3 0.5 ‐0.2
Valuation Realized Risk Premium (5%) Pro EM 3.1 2.6 0.5 0.0 M. Stanley Pro US ‐0.4 0.1 ‐0.5
Valuation Relative FY0 P/E Ratio (10%) Pro EM 0.4 0.3 0.1 0.0 N. Berman Pro US ‐0.3 0.0 ‐0.3
Decision 5: Developed Equity vs. US Equity Pro US ‐0.6 ‐1.0 0.4 SPN Average Pro US ‐0.4 ‐0.2 ‐0.2 ALARM No Alarm 0.5 0.07%
Valuation Relative LTM P/E (10%) Pro US ‐2.8 ‐3.0 0.3 0.0 Barclays Pro US ‐1.1 ‐0.6 ‐0.5 F 1 R 8
Valuation Relative Dividend Yield (25%) Pro US ‐1.0 ‐2.4 1.3 0.3 Black Rock Pro US ‐2.7 ‐2.0 ‐0.7
Risk 12M Correl of 1M Returns (10%) Pro US ‐4.2 ‐4.2 0.0 0.0 JP Morgan Pro US ‐0.8 0.1 ‐0.9
Macro Relative Policy Rates (20%) Pro Dev 1.6 1.7 ‐0.1 0.0 M. Stanley Pro US ‐0.7 0.0 ‐0.7
Macro Investor Sentiment Differential (10%) Pro Dev 1.7 0.9 0.8 0.1 N. Berman Pro Dev 0.8 ‐0.3 1.2
Macro Eurozone Consumer Confidence (10%) Pro Dev 0.4 ‐0.6 0.9 0.1
Macro EAFE vs US GDP Forecast (15%) Pro US ‐1.1 ‐0.2 ‐0.9 ‐0.1
Decision 6: US Small Cap vs. US Large Cap Pro Large Cap ‐1.1 ‐1.5 0.3 SPN Average Pro Large Cap ‐0.9 ‐0.8 ‐0.1 No Alarm No Alarm 0.8 0.10%
Macro Coincident Indicators (10%) Pro Large Cap ‐1.5 ‐1.7 0.2 0.0 Barclays Pro Large Cap ‐0.9 ‐0.9 0.0 D 3 R 7
Macro CRB Futures/ CRB Raw Industrials (5%) Pro Large Cap ‐2.6 ‐1.4 ‐1.1 ‐0.1 Black Rock Pro Large Cap ‐2.6 ‐2.3 ‐0.4
Valuation Relative Forward Earnings Yield (10%) Pro Small Cap 1.9 1.1 0.8 0.1 JP Morgan Pro Large Cap ‐2.2 ‐2.1 ‐0.1
Macro Global M&A Dollar Volume (5%) Pro Large Cap ‐3.0 ‐3.2 0.2 0.0 M. Stanley Pro Large Cap ‐0.7 ‐0.3 ‐0.4
Macro Cushing Spot Smoothed  (15%) Pro Small Cap 0.9 1.2 ‐0.3 0.0 N. Berman Pro Small Cap 0.1 0.1 0.0
Macro Ind. Prod. Bus. Equip.  (20%) Pro Large Cap ‐0.9 ‐1.6 0.7 0.1
Macro C&I Loans + CP Outstanding  (15%) Pro Large Cap ‐2.4 ‐2.8 0.4 0.1
Valuation Small Cap CFROI  (20%) Pro Large Cap ‐2.3 ‐3.0 0.7 0.1
Decision 7: US LC Growth vs. US LC Value Pro Growth 1.1 0.9 0.3 SPN Average Pro Value ‐1.3 ‐0.8 ‐0.5 No Alarm ALARM 0.4 ‐0.06%
Valuation Rel. Div Yld (20%) Pro Growth 5.0 5.0 0.0 0.0 Barclays Pro Growth 0.3 0.2 0.1 R 6 F 1
Macro Money Supply Chg (20%) Pro Growth 0.5 1.3 ‐0.8 ‐0.2 Black Rock Pro Value ‐1.4 ‐1.4 0.0
Risk VIX (20%) Pro Growth 3.2 0.7 2.5 0.5 JP Morgan Pro Value ‐0.7 ‐0.7 0.0
Macro US Avg Hourly Earnings (15%) Pro Value ‐4.0 ‐2.9 ‐1.1 ‐0.2 M. Stanley Pro Value ‐4.7 ‐2.8 ‐1.9
Technical R1K/R2K Ratio 3M Smoothed (15%) Pro Value ‐0.1 ‐0.6 0.6 0.1 N. Berman Pro Value 0.0 0.2 ‐0.2
Risk Semi‐Deviation Growth/Value Ratio (10%) No Preference 0.0 0.0 0.0 0.0
Decision 8: Treasuries vs. Cash Pro Cash ‐1.0 ‐1.0 0.0 SPN Average Not Constructed No Alarm No Alarm 1.0 0.03%
Valuation 10 Yr ‐ 5 Yr Rtn Fcst (30%) Pro Bonds 2.7 3.4 ‐0.7 ‐0.2 Barclays No Preference 0.0 0.0 0.0 R 7 R 5
Risk Fear Index (15%) Pro Cash ‐5.0 ‐5.0 0.0 0.0 Black Rock No Preference 0.0 0.0 0.0
Macro Citi Eco Surprise Index (15%) Pro Cash ‐1.9 ‐3.6 1.7 0.3 JP Morgan No Preference 0.0 0.0 0.0
Macro Consumer Confidence (15%) Pro Cash ‐5.0 ‐5.0 0.0 0.0 M. Stanley No Preference 0.0 0.0 0.0
Macro Morosani Index (15%) Pro Bonds 1.9 1.5 0.4 0.1 N. Berman No Preference 0.0 0.0 0.0
Macro Survey Rates Higher ‐ Lower (10%) Pro Cash ‐3.1 ‐2.2 ‐0.9 ‐0.1
Decision 9: US Long Tsys vs. US TIPs Pro US TIPS ‐1.4 0.7 ‐2.1 SPN Average Not Constructed No Alarm No Alarm 1.9 0.27%
Valuation US BE Inflation (15%) Pro US TIPS ‐5.0 5.0 ‐10.0 ‐1.5 Barclays No Preference 0.0 0.0 0.0 R 5 R 8
Rates 10s/2s Treas Curve (15%) No Preference 0.0 0.0 0.0 0.0 Black Rock No Preference 0.0 0.0 0.0
Risk Macro Risk (20%) Pro Treasuries 5.0 5.0 0.0 0.0 JP Morgan No Preference 0.0 0.0 0.0
Risk Ted Spread (5%) Pro US TIPS ‐0.3 ‐0.5 0.2 0.0 M. Stanley No Preference 0.0 0.0 0.0
Macro US Corporate Bond Issuance (25%) Pro US TIPS ‐5.0 ‐5.0 0.0 0.0 N. Berman No Preference 0.0 0.0 0.0
Macro Consumer Confidence (10%) Pro US TIPS ‐1.1 ‐2.7 1.6 0.2
Macro Philly Fed Employment Fcst (10%) Pro US TIPS ‐2.7 5.0 ‐7.7 ‐0.8
Decision 10: High Yield vs. US Long Tsys Pro HY 0.7 0.4 0.3 SPN Average Not Constructed No Alarm No Alarm 1.6 0.18%
Macro Default Rate (10%) Pro HY 5.0 5.0 0.0 0.0 Barclays No Preference 0.0 0.0 0.0 F 4 F 7
Risk Extreme HY Spread (15%) No Preference 0.0 0.0 0.0 0.0 Black Rock No Preference 0.0 0.0 0.0
Macro Business Loan Growth (15%) Pro US Tsys ‐0.7 0.0 ‐0.7 ‐0.1 JP Morgan No Preference 0.0 0.0 0.0
Risk 1Y Roll Std Vol of R2K Value (10%) Pro US Tsys ‐1.6 ‐1.3 ‐0.3 0.0 M. Stanley No Preference 0.0 0.0 0.0
Macro US Budget Surplus % GDP (10%) Pro HY 2.0 2.2 ‐0.2 0.0 N. Berman No Preference 0.0 0.0 0.0
Rates Chg in US Generic 30Yr (15%) Pro HY 4.4 2.7 1.8 0.3
Macro Non‐Fin Profits as % of GDP (25%) Pro US Tsys ‐1.4 ‐2.4 1.0 0.2
Decision 11: High Yield vs. US Stocks Pro US Stocks ‐1.4 ‐2.1 0.8 SPN Average Not Constructed No Alarm No Alarm 0.8 0.02%
Rates 10Yr Bond Yld Chg (15%) Pro US Stocks ‐5.0 ‐3.0 ‐2.0 ‐0.3 Barclays No Preference 0.0 0.0 0.0 R 5 F 4
Rates HY Spread (10%) No Preference 0.0 0.0 0.0 0.0 Black Rock No Preference 0.0 0.0 0.0
Macro Coincident Indicators (10%) Pro US Stocks ‐2.8 ‐2.8 ‐0.1 0.0 JP Morgan No Preference 0.0 0.0 0.0
Macro CRB Futures/ CRB Raw Industrials (10%) Pro US Stocks ‐5.0 ‐5.0 0.0 0.0 M. Stanley No Preference 0.0 0.0 0.0
Risk NYSE Short Interest Ratio (20%) Pro HY 3.7 4.3 ‐0.5 ‐0.1 N. Berman No Preference 0.0 0.0 0.0
Macro Global M&A Dollar Volume (35%) Pro US Stocks ‐1.7 ‐5.0 3.3 1.2
Key:
Pos. # = Pro Asset 1 vs 2 Cusum W= Cusum Warning U= Undervalued (1‐4)
Neg. # = Pro Asset 2 vs 1 Cusum A= Cusum Alarm O= Overvalued (6‐10)
Zero = No Preference TH= Trend Dev. High, Alarm (9,10) F= Falling
TL= Trend Dev Low, Alarm (1,2) R= Rising
TRS Tactical Asset Allocation
September 30, 2011
Stocks vs. Bonds
5.00 80.00%
4.00
60.00%
3.00
40.00% GS Global Leading Indicator (15%) 
2.00 Industrial Production Diffusion (5%) 
20.00%
1.00 STDEV of FWD Earnings Estimates (5%) 
0.00 0.00% Non‐Financial Profits % GDP (25%) 
‐1.00 Rel EPS Yld (10%) 
‐20.00%
US Gen 10Yr Yld (10%) 
‐2.00
‐40.00% Crude Oil Momentum (20%) 
‐3.00
Consumer Sentiment Composite (10%) 
‐60.00%
‐4.00
Model Signal
‐5.00 ‐80.00% Actual N6M Return
6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1
0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/
0/ 1/ 4/ 7/ 0/ 1/ 4/ 7/ 0/ 1/ 4/ 7/ 0/ 1/ 4/ 7/ 0/ 1/ 4/ 7/
1 1 1 1 1
Recent Model Changes
For October, the model has switched to slightly prefer stocks over bonds.  Biggest shifts in factors were due to crude oil price momentum and the 
Goldman Sachs Global Leading Indicator.  The most recent oil price drops in the past few months has caused a neutral signal, coming off the previous 
preference towards bonds.   The Goldman Sachs Global Leading Indicator has turned off the preference to bonds and gone neutral. Forward earnings 
estimates and EPS yields still favor stocks, and non‐financial profits, although still favoring bonds, has begun shifting towards the stocks preference.
EM vs. DM
5.00 0.50 
4.00 0.40 
3.00 0.30 
EM/EAFE Total Stocks Rise / Fall Ratio (15%)
2.00 0.20 
GSCI Agric TR (20%)
1.00 0.10  Emerging Market Discount Rate (15%)
0.00 ‐ Compiled Volatility ‐EM (10%)
‐1.00 (0.10) EM/EAFE Policy Rates (5%)
Dollar Index (15%)
‐2.00 (0.20)
WGBI Yield (15%)
‐3.00 (0.30)
Relative P/E (5%)
‐4.00 (0.40)
Model Signal
‐5.00 (0.50) Actual NSM Return
6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1
0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/
0/ 1/ 4/ 7/ 0/ 1/ 4/ 7/ 0/ 1/ 4/ 7/ 0/ 1/ 4/ 7/ 0/ 1/ 4/ 7/
1 1 1 1 1
Recent Model Changes
For October, the model has shifted from small preference to developed markets to complete neutrality.  Volatility within the emerging market region 
has drastically increased, causing a preference to developed ex‐US market over EM.  Current discount rate for emerging markets has also increased, 
and caused additional preference to developed markets. These factors are countered by an overall weak dollar (relative to previous years) and a low 
WGBI yield.  As the dollar is relatively weak compared to history, there is a flight to the riskier asset class, which in this case is emerging markets.  As 
the WGBI yield falls, there is a negative outlook towards returns in EAFE, so EM is preferred. WIth current data points, it appears the model will revert 
to a preference to emerging markets in the next month.