Cabana uses the term “scene” to refer to the stages of the financial market cycle.
There are five total scenes utilized in Cabana’s algorithm.
A scene change is a reallocation that takes place when Cabana’s algorithm signals a change in the economic cycle.
CARA is Cabana’s proprietary Cyclical Asset Reallocation Algorithm, which is used to manage risk in all Cabana portfolios and products. CARA attempts to identify the current scene and allocate assets according to their relative attractiveness at that time. Learn more about CARA here.
CARA uses a combination of fundamental and technical data to help determine economic conditions. This includes money supply, yield curve data, earnings and price. CARA is optimized to protect drawdown parameters and removes risk at varying speeds dependent upon the portfolio and its target drawdown number.
Yes, the fundamental trigger to reallocate or execute a scene change is the same across portfolios, but the amount of risk that is removed or added changes dependent on the target drawdown of the portfolio. For example, the Target Drawdown Professional 16 does not remove as much risk as the Target Drawdown Professional 5 when we trade out of a bullish scene.
As a rule, in deteriorating conditions, risk is removed more quickly in the more conservative portfolios (or those with a lower target drawdown number). The beta (risk statistics) for each portfolio is provided pre- and post-scene change in Cabana’s Reallocation Notice. Advisors can request a copy of this brochure by contacting Taylor Woodard.
There is a momentum component in CARA that allows us to forecast a signal ahead of time. As such, we are able to (within limitations) provide advance notice of a reallocation. However, a reallocation will not occur unless a confirmed signal is provided by CARA.
Reference Cabana’s Reallocation Notice, which is shared with advisors at each scene change. Advisors can request a copy of this brochure by contacting Taylor Woodard.
Drawdown is the foundation of CARA’s optimization process, and our primary objective is to maintain and protect it, but drawdown does not in and of itself result in a signal to reallocate. As such, drawdown can be less or more than what is targeted across varying market conditions.