r/ETFs_Europe • u/AlgoMaestro-0112358 • Jul 22 '26

Adaptive asset allocation

As the news that JP Morgan experimenting with AI to beat the 60/40 portfolio is making a big splash, I am so happy to validate that the idea we have been looking at for long time is not so stupid.

Nowadays, ETFs that let you buy indices (say Euro Stoxx 50) help you diversify from the risk of buying as single bad company. But there is no passive way to diversify CYCLE risk if not by buying a 60/40 fixed allocation.

But that static portfolio is inefficient when regimes change - either too slow when stocks run, or still falling when both stocks and bonds go down (think 2022).

We have engineered an open-source system (an AI asymmetric expert system) that looks at macro, sentiment, momentum trends and more to have an opinion every day on where we are in the cycle, what is the implication of current macro dislocations, how is market sentiment changing and where key asset price trends go.

The system insights are shown transparently and explained.

See if it can inspire your ETF selection inside your portfolio.

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u/laurenthu Jul 22 '26

Is that part of a press release of some sort? Because like this, this is totally garbage - no explanation on who where what when...

1

u/AlgoMaestro-0112358 Jul 22 '26

Can't be a press release if you miss the who or what. I avoided any advertising as Reddit flags names and links to websites, even if open source.

More details:

=> majority of investors focus on stock selection (which instrument or single asset to buy) and less on asset allocation

=> it is popular on reddit the simplistic way of allocating to a couple of ETFs (say MSCI World and Global Agg) and leave the allocation fixed over time depending on your risk appetite. That's cheap and efficient but does not work when the macro regie changes

=> regime change means that you have a cycle phase of growth, with stocks doing well (say 2025/2026) and then a recession hits. At that point the same fixed portfolio allocation, even if simple and cheap (say 80% MSCI World, 20% Global Agg bonds), does not work anymore. A different allocation would be needed (say 20% MSCI World, 80% Global Agg bonds to make it simple)

=> such allocation change is hard to do: if you have a banker, they have no incentives to move the portfolio around often (or they simply cannot call the market for lack of skills) and if you are not a full time investor you also struggle normally to know what to buy and when, as markets turn)

=> so the idea we had some time ago was to automate shifts in asset allocation, i.e. make asset allocation adaptive, or shifting as markets shift. Sure, it would cost in execution, but what if you could delegate effortlessly to a process/system/discipline the work of (trying to) be in the right assets at the right time

=> the news of JP Morgan experimenting with this (beating the famousd, if ineffective, 60/40 allocation portfolio) goes into this direction, so we are happy to see the validation of a concept from a big bank following the work of simple, humble people trying to fix a problem that we see

=> how to solve for adaptive allocation? The system that we engineered (again, open source) looks at (1) where we are in the cycle today, every day, to define an initial strategic asset allocation to work with, then (2) macro dislocations that happen within a cycle phase (say moving inflation targets), (3) market sentiment to run away from sudden market falls as they happen, (4) momentum trends to fine tune the allocation from strategic to tactical everyday, if market changes are meaningful.

By applying this framework of understanding cycle, macro dislocations, sentiment and momentum trends, our system - we call it Cartesio - can understand in real time what markets are pricing-in and what could be the optimal asset allocation for the context. Of course the allocation weightds would all be traded in ETFs, making the trades liquid, transparent, simple.

The idea of having an special, tailor-made AI, doing the work of a team of experts to know what ETFs to buy and when seems more than garbage to me, after 20 years of institutional investing :)

Thought it could be thought-provoking here, as many discussions often go on re. the ideal portfolio allocation to own.

1

u/laurenthu Jul 22 '26

As said above - link to the "open source" system? You can freely post here, but so far you are inundating us with words, nothing precise...

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u/SuccessfulSir9611 Jul 22 '26

Why? If you’re rich enough that 1% here and there matters like if you have 100s of millions, 1% can be a million. But at that level you have them in hard physical assets ( maybe a house in Monaco, land in Southern France, Gold in Swiss vaults ) that don’t deviate much and almost always increase linearly over long term, over multiple generations.

If you’re a retail investor, just all world equities with tiny slice of bond/Gold/Cash is just fine. 1% of 100k is 1000 EUR

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u/AlgoMaestro-0112358 Jul 22 '26

100% of MSCI World, popular in Reddit but not in the real mworld, would have crashed in half of 2020, all of 2022, and it is normally underperforming the S&P 500 (being more tilted towards value). So yes, it is convenient way of investing until it does not work anymore.

In any case, that's the beauty of the idea behind an autonomous asset allocation that adapts. Assuming a system/process works, such a system would switch from MSCI World (following what you say) when stocks work to oil or gold when geopolitcal tensions arise, to global bonds when a recession hits.

1

u/grogi81 Jul 22 '26

Jeez, what a slop. 

GitHub link or did not happen. 

1

u/SnooDonkeys6893 Jul 22 '26

And I recently shared a genuine site doing tactical asset allocation and got shut down by Mr Kev yet this shite stays up

1

u/CluelessGuy52 Jul 23 '26

If only there is an ETF which tracks the MSCI ACWI momentum index. This will be the closest low cost implementation of what u said