Asset Rotation: The Demise of Modern Portfolio Theory and the Birth of an Investment Renaissance

by Matthew P. Erickson

An all-weather, tactical approach to asset management utilizing Exchange Traded Funds (ETFs) In Asset Rotation, portfolio management pioneer Matthew P. Erickson demonstrates a time-tested approach to asset management that has worked throughout the history of capital markets, in good times and bad. Providing investors with strong participation in rising markets, but more importantly with a discipline to reduce participation in prolonged declines. Over time this revolutionary approach has yielded superior returns, with significantly reduced levels of risk; providing the engine for true, long-term sustainable growth.

The investment world as we know it has changed, and the paradigm has shifted. What has worked in the past may no longer work in the future. No longer may bonds be regarded as a safe haven asset class, as for the first time in generations, investors in fixed income face losses as interest rates rise from historical all-time lows. For those adhering to a conventional Modern Portfolio Theory based investment approach to asset management, what was once regarded as safe and stable, may very well soon become our greatest impediment.

Asset Rotation provides investors with a practical solution for today's real world problems. This tactical approach to asset management provides us with concrete proof that there is indeed a better way.

We are standing on the precipice of an Investment Renaissance. What was previously impossible, is now possible. Find out how.

Presents an easy-to-understand price momentum-based approach to investing Illustrates the benefits of asset rotation Offers a systematic approach for securing a sound financial future Provides further insights as to how to customize your own asset rotation portfolio Matthew Erickson gives investors a hands-on resource for how to navigate an increasingly difficult investment landscape, by providing them with keen insights into the most rapidly growing segment of the investment markets.

Genres: Finance, Nonfiction

225 pages, Kindle Edition

First published January 1, 2014

Reviews

[Dominik · Rating 5 out of 5]

So initially, I wanted to give 4 stars but settled on 5.
The book is about sector trend following, or if someone prefers, an idea opposite to "the dogs of the Dow". You choose the best performing sectors and or bond ETF's from a chosen pool. Every month you rebalance the portfolio and pray for a strong trend in the market.
Initially, I was put off by the lack of clear, exact rules for the portfolio. Seems like there are some general guidelines but no clear-cut rules. However, it wouldn't be wise for a total stranger to the system following strategies to dive into such an endeavour. So it might be good that some system nuances have to be thought over, which may prompt the investing newbie to dig deeper into the subject.
The strategy worked really fine until the book's publication. However, when the markets entered a non-directional market, it badly underperformed S&P500. In 2020 and 2021 the strategy started to shine again.
So use this portfolio wisely. If you try the strategy, I advise you to generally focus on reducing transaction costs;
1. Decide on the minimum threshold for rotation to occur, some trades are better left alone if the difference in return between the sectors is minimal.
2. See if rotation into only rising sectors is optimal. Investing in 5 sectors, even if some of them were slightly negative the previous month, is great for market turnarounds.
3. Sometimes it might be good to stay out of the market for some time.
4. Try extended rotation intervals based on different SMA's.
5. Try to use ETFs whenever possible. There are already some which do part of the job for you.

[Jh · Rating 3 out of 5]

This book is a simple and easy to read guide on how to allocate assets in your portfolio. I really like how the idea is so simple to follow and with the small adjustments made to the asset rotation strategy, it was able to easily outperformed the S&P500 benchmark with much lesser risk when indexed to 1990.

However, there was a huge caveat that was not taken into account that has potential to cut short our returns. That is, how is one able to ignore the trading fees with the vast amount of rebalancing required every month? And the fact that the author didn't even acknowledge this is pretty bad. At the least they should have stated this assumption.

Nonetheless, if you happen to have zero commission with your brokerage, I would think this book might be worth checking out to understand their investment strategy.