Ivy Portfolio - Timing

Ivy Portfolio - Timing was developed by Meb Faber of Cambria Investment Management and first published in his 2006 white paper "A Quantitative Approach to Tactical Asset Allocation", later updated in 2009 and 2013. The strategy takes the equally-weighted five-asset-class framework of the Ivy Portfolio — US stocks, foreign stocks, US bonds, commodities, and REITs — and adds a simple trend-following overlay: each asset class is held when its price is above its 10-month simple moving average, and replaced with cash (T-bills) when it falls below.

Investment Philosophy

The core problem Faber set out to solve is the asymmetry between how long drawdowns last and how long most investors can psychologically tolerate them. All G-7 countries have experienced equity drawdowns exceeding 75% at some point in history — a loss that requires a 300% gain just to recover. The trend filter is designed to sidestep the worst of those episodes by moving to cash when markets break down, accepting the tradeoff of potential underperformance during strong bull markets in exchange for dramatically reduced drawdowns during prolonged bear markets. The model is deliberately non-discretionary: one rule, one parameter, applied identically to every asset class.

Who It's For

This portfolio suits investors who are more concerned with avoiding catastrophic losses than with maximizing upside capture, and who are willing to accept that the strategy may lag a simple buy-and-hold allocation during strong bull markets. It requires enough discipline to follow a mechanical system even when it generates signals that feel counterintuitive.

Pros

• The trend filter has historically reduced maximum drawdown dramatically compared to buy-and-hold across the same five asset classes, with modest impact on long-term returns
• The rule is transparent and simple: one signal per asset class, checked once a month at month-end, with less than one round-trip trade per asset class per year on average
• Parameter stability is robust — Faber tested moving averages from 3 to 12 months and found similar results across the range, reducing concerns about overfitting

Cons

• The strategy can significantly underperform buy-and-hold during extended bull markets, as whipsaws and early exits cost returns when trends reverse quickly
• Cash drag is a structural feature — the portfolio is in cash roughly 30% of the time on average, which is a headwind in periods when T-bill yields are low
• Trading in a taxable account introduces complexity: turnover runs around 70% annually, which is meaningfully higher than a static allocation

Technical Notes

The model is checked and rebalanced monthly on the last trading day of the month; intra-month price action is ignored. The original paper uses T-bills as the cash substitute, though Faber also explored using 10-year Treasuries as an alternative — taking on some duration risk in exchange for higher yield on the uninvested portion. This is best implemented in a tax-deferred account given the trading frequency.