Allocation History

Cabana’s Allocation in Response to the Economic Cycle

• Scene

  Broad Themes

• Bullish / Transitional Bullish

  Typical of a bull market cycle resumption following a correction or bear market. Risk assets, such as equities, outperform fixed income assets such as treasuries, bonds, preferred stocks and REITS.
• Moderately Bullish

  Typical of an uptrend within a cyclical bull market cycle. Equities of all types generally outperform. Fixed income and dividend paying assets may also be attractive.
• Cautiously Bullish

  Typical of a pullback within a cyclical bull market. Defensive equity sectors as well as fixed income and dividend paying assets outperform higher beta risk assets.
• Moderately Bearish

  This scene represents the typical uptrend within a larger, cyclical bear market. Income producing assets, including preferred stocks, corporate grade bonds and dividend paying large cap equities outperform higher beta assets.
• Transitional Bearish

  This scene represents the culmination of sustained downtrend following cyclical bullish conditions. This scene is typically short in duration and may present an opportunity to allocate into assets that have been oversold and may resume their uptrend. Alternatively, this scene represents the gateway to a cyclical bear market should the downtrend continue. A diversified portfolio of equities, bonds, real estate and commodities are appropriate. The relative beta of each strategy in this scene is dependent upon their respective target drawdown.
• Safety Valve

  This represents Cabana’s most bearish scene. Holdings selected historically tend to perform well during times of excessive market drawdown. These include U.S Treasuries, gold and the U.S. dollar, among others. This scene overrides the normal operation of the first five scenes in the event of market declines beyond a predefined limit, resuming normal operation when the basic five-scene model transitions upward (to a more bullish scene) or when an upward market trend is signaled (if we are already in the most bullish scene). This scene seeks to protect against periods of unusual market conditions, including convergence of asset class correlation, unforeseen economic shock, or other black swan events. In this way, the Safety Valve is intended to complement Cabana’s “target drawdown” optimization during times when excessive drawdown is threatened. When the Safety Valve is triggered, all strategies will be reallocated, and we will seek to remove beta in proportion to the drawdown of the strategy. This is "Safety Valve Level 1”. In the event CARA signals a scene change to bear market conditions while the Safety Valve is in effect, all strategies will be reallocated to seek to remove most or all beta in an effort to protect against further losses in cyclical bear market conditions. This is "Safety Valve Level 2”.

*All investments carry a degree of risk. Scenes assigned as per the judgment of The Cabana Group. Scene names and number of scenes have changed over time.

Repeating Economic Cycle

* Markets are a leading indicator (within 6 to 8 months) of the economic cycle, which is considered when determining the asset allocation.