A Macro Double-Clock Model for Asset Allocation and Small-Cap Exposure

Summary

The document describes a macro allocation framework built from six risk factors covering growth, inflation, rates, credit, foreign exchange, and term spreads. It combines momentum signals with cycle-phase estimates, maps the resulting states into growth–inflation and rates–credit regimes, then scores equities, bonds, commodities, and gold. Risk budgets are adjusted by the scores and scaled by recent volatility. A daily implementation adapts the slower macro inputs and specifies state-based rebalancing.

Reported historical tests compare the allocation with an equal-weight benchmark and apply the weights to a small-cap stock portfolio paired with a gold proxy. The document reports improved risk-adjusted results and smaller drawdowns in those tests, but these are backtest findings, not evidence of future performance. It also acknowledges survivorship and data-timing concerns, parameter tuning, and the liquidity costs of small-cap stocks; the growth-factor inputs and currency proxy differ from the cited research because of data limitations.

Key ideas

• Six macro factors feed two regime clocks that score major asset classes.
• Factor momentum drives state estimates, with phase fitting used to supplement unclear momentum signals.
• Asset scores adjust risk budgets, which are then scaled by recent volatility.
• The small-cap enhancement test shifts exposure between a small-cap basket and a gold proxy.
• The reported backtests have survivorship, timing, overfitting, and liquidity limitations.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.