A Simple Bond Allocation Model v2
Another bond allocation model, back-tested
As a follow-up piece to my previous bond allocation v1, I wanted to show you another example of a model-based strategy which has historically worked well. Again, I am taking a tested model which worked well into the mid-90s and then updating the weekly performances to see how it would have fared over the most recent times.
From 1957 to 1995, this model's signals increased the average annual return of the chosen bond index from a 7.5% average annual return (not compounded) with a 21% maximum drawdown to an average annual return of 12.8% with a 3.4% maximum drawdown. This should be enticing enough to analyse whether this particular allocation rule-based strategy still offers value.
Let’s dig in!