Inflation Compass
Growth up: SPY > 200-day SMA. Level: inflation gauge (T5YIE, CPI YoY pre-2003) above 2.0%. Backtest max drawdown: -36.4%.
Strategy & methodology
Growth up: SPY > 200-day SMA; Level: inflation gauge (T5YIE, CPI YoY pre-2003) above 2.0%; Gauge momentum: gauge above its value 60 trading days earlier; Asset momentum: 60-day regression slope of the inflation-sector ratio > 0…
- Strategy type:
- Tactical asset allocation
- Rebalance frequency:
- Monthly
- Original publication:
- 2026-07-27; results after that are out-of-sample for the original research. All results are backtest simulations.
- Data through:
- Backtest data through 2026-10-30.
Simulated history
Stand-in funds and until when (5)
- IEF: VFITX before Jul 26, 2002
- XLU: FSUTX before Dec 22, 1998
- XLP: FDFAX before Dec 22, 1998
- XLK: FSPTX before Dec 22, 1998
- XLE: FSENX before Dec 22, 1998
Before these dates the backtest uses a stand-in, not the fund itself, so the results over those stretches show how the rules would have behaved, not what the fund returned.
Research data and disclosures
Growth up: SPY > 200-day SMA. Level: inflation gauge (T5YIE, CPI YoY pre-2003) above 2.0%. Backtest max drawdown: -36.4%. This is a tactical asset allocation strategy. BestFolio supplies the public rule or approach and backtest context; current signals, allocations, and paid interactive data remain restricted to Pro access. Users review the published signal and place any resulting trades in their own brokerage. Displayed returns remain hypothetical and do not represent a customer's brokerage record. The facts above show how current the data is.
- BestFolio supplies
- The monthly signal email and this strategy page; current signals and email alerts require Pro access.
- Customer action
- Review the published signal and place any required trades in your own brokerage. BestFolio does not execute orders.
- Costs and exclusions
- Backtests are net of a modeled one-way transaction cost (10 bps, scaled up to 3x under stress); taxes, fund-expense drift, or market impact are not modeled. No tax, no slippage beyond the stated cost. Methodology limitations
Published result: Engine drift-until-flip-v1, data version 5514d616, published 2026-11-02
Is Inflation Compass still working in 2026?
Inflation Compass returned 30.50% over the trailing 12 months and 116.37% over 36 months through 2026-10-30, compared with a full-backtest annualized return of 17.39%. Its full-backtest maximum drawdown was -36.38%. The full sample contains 19446 daily NAV observations from 1950-01-03. These are model results, not investor account returns or a promise. As of 2026-10-30 it is -6.20% below its high-water mark of 2026-05-19, 5 months ago, and its longest run below a previous high was 7.3 years. Recent returns do not establish that the strategy will keep working.
| Period | Return | CAGR | Max drawdown | Observations | Dates |
|---|---|---|---|---|---|
| Trailing 12 months | 30.50% | Not annualized | -23.81% | 252 | 2025-10-30 to 2026-10-30 |
| Trailing 36 months | 116.37% | Not annualized | -23.81% | 754 | 2023-10-30 to 2026-10-30 |
| Full backtest | 22318822.02% | 17.39% | -36.38% | 19446 | 1950-01-03 to 2026-10-30 |
Last verified
Common questions about these results
Are these live investor returns?
No. These are the latest model NAV results from the published backtest. A recent date alone does not make a result an independently observed live record. Investor costs, taxes and execution can differ.
Why can a strategy lag for a year?
A tactical model can hold defensive assets during a rally or change positions during reversals. A short window can differ substantially from its full history. Compare cumulative returns over matching dates and inspect drawdowns as well.
How long has it spent below a previous high?
Its last high-water mark was 2026-05-19, 5 months before 2026-10-30, and it is -6.20% below that level now. The longest run below a previous high in the full backtest was 7.3 years. Recovering from a drawdown can take years, and a strong trailing return does not mean a past high has been regained.
Where can I check the signals behind these results?
The Signals tab on this page lists each dated model decision for the selected variant; for Pro strategies they are visible to Pro members. The methodology page explains the backtest assumptions.
Inflation Compass at a glance
Inflation Compass is a tactical asset allocation (TAA) strategy by Inspired by David Varadi (CSS Analytics) across Energy, Technology, Utilities, Consumer Staples, rebalanced monthly. Backtested 1950-01-03 to 2026-10-30 (76.8 years): 17.4% CAGR, 0.75 Sharpe, -36.4% max drawdown, 16.9% volatility.
- Type
- Tactical (TAA)
- Author
- Inspired by David Varadi (CSS Analytics)
- Rebalancing
- Monthly
- Risk
- Aggressive
- Period
- 1950-01-03 to 2026-10-30
- CAGR
- 17.4%
- Sharpe
- 0.75
- Max Drawdown
- -36.4%
- Volatility
- 16.9%
Inflation Compass — Tactical Asset Allocation Strategy
Inflation Compass is David Varadi's 2026 successor to his Growth-Inflation Sector Timing framework. The same four-quadrant regime map is kept, but the inflation signal now reads the bond market's own forecast: the 5-year breakeven inflation rate (FRED T5YIE), the spread between nominal Treasuries and TIPS. Inflation is 'on' when the breakeven is above the Fed's 2% anchor AND either the breakeven is higher than 60 trading days ago or a 60-day regression slope of an inflation-sector ratio is positive. Growth is SPY vs its 200-day SMA.
One position at a time, decided at each month-end and held for the next month: XLE (inflationary expansion), XLK (disinflationary expansion), XLU (stagflation), or a 50/50 XLP+IEF blend (disinflationary slowdown). About three switches per year.
Inflation Compass: frequently asked questions
- What is Inflation Compass?
- David Varadi's 2026 successor to Growth-Inflation Sector Timing. SPY 200-day trend sets growth; the 5-year breakeven inflation rate (with a sector-ratio confirmation, trailing CPI before 2003) sets inflation. One position at a time, monthly: XLE, XLK, XLU, or a 50/50 XLP+IEF blend. About three switches per year.
- Who created the Inflation Compass strategy?
- Inflation Compass was developed by Inspired by David Varadi (CSS Analytics). It is based on Varadi, D. (CSS Analytics). The Inflation Compass Model, 2026.
- What is the historical return and maximum drawdown of Inflation Compass?
- Backtested from 1950-01-03 to 2026-10-30, Inflation Compass returned 17.4% CAGR with a -36.4% maximum drawdown and a Sharpe ratio of 0.75. Past performance does not guarantee future results.
- How often is Inflation Compass rebalanced?
- Inflation Compass is rebalanced monthly. BestFolio publishes the updated allocation signal each period.
- Is Inflation Compass a tactical asset allocation strategy?
- Yes. Inflation Compass is a tactical asset allocation (TAA) strategy: it adjusts its holdings based on market signals each period rather than holding a fixed allocation.
Backtest Performance (1950-01-03 to 2026-10-30)
| Metric | Inflation Compass |
|---|---|
| CAGR | 17.4% |
| Max Drawdown | -36.4% |
| Sharpe | 0.75 |
| Sortino | 1.26 |
| Volatility | 16.9% |
| Calmar | 0.48 |
| Total Return | 22318822.0% |
| Backtest Period | 76.8 years |
Every rebalance fills at the signal-day close, net of modeled transaction costs. Followers trade at the next open; the delayed-close line in the Rebalance Frequency Sensitivity card shows the effect of trading one session later. Execution assumption
Strategy Details
- Type
- Tactical (TAA)
- Rebalancing
- monthly
- Risk Level
- aggressive
- Variants
- 3
- Author
- Inspired by David Varadi (CSS Analytics)
- Source
- Varadi, D. (CSS Analytics). The Inflation Compass Model, 2026
Asset Classes
- Energy
- Technology
- Utilities
- Consumer Staples
- Treasuries
Categories
Further reading
New to this approach? Read what tactical asset allocation is and how it works.
Holding Inflation Compass alongside another strategy? Use the free portfolio overlap calculator to see how much of the two portfolios actually differs.
Track Inflation Compass in Your Portfolio
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