Inflation Compass
Growth up: SPY > 200-day SMA. Level: inflation gauge (T5YIE, CPI YoY pre-2003) above 2.0%. Backtest max drawdown: -46.5%.
Research and methodology
Growth up: SPY > 200-day SMA. Level: inflation gauge (T5YIE, CPI YoY pre-2003) above 2.0%. Backtest max drawdown: -46.5%. 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 dates below identify the available data and the next scheduled review.
- Cadence:
- Monthly
- Data through:
- Backtest data through 2026-09-16; latest signal date not currently published.
- History boundary:
- Live signals published since 2026-07-27; results before that date are a backtest simulation
- Published result:
- Engine daily-reset-v1, data version bc4d3045, published 2026-09-10
- Rule / approach
- 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…
- BestFolio supplies
- The monthly signal email and this strategy page; current signals and email alerts require Pro access.
- Customer action
- Trade date not currently published. Review the published signal before placing any trades in your own brokerage.
- 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
- Freshness
- Signal data cutoff not currently published. Backtest data through 2026-09-16; latest signal date not currently published.
- Next expected action
- Next review not currently published.
Is Inflation Compass still working in 2026?
Inflation Compass returned 17.26% over the trailing 12 months and 83.90% over 36 months through 2026-09-16, compared with a full-backtest annualized return of 16.92%. Its full-backtest maximum drawdown was -46.51%. The full sample contains 19389 daily NAV observations from 1951-02-28. These are model results, not investor account returns or a promise. Recent returns do not establish that the strategy will keep working.
| Period | Return | CAGR | Max drawdown | Observations | Dates |
|---|---|---|---|---|---|
| Trailing 12 months | 17.26% | Not annualized | -23.81% | 251 | 2025-09-16 to 2026-09-16 |
| Trailing 36 months | 83.90% | Not annualized | -23.81% | 752 | 2023-09-15 to 2026-09-16 |
| Full backtest | 13426336.67% | 16.92% | -46.51% | 19389 | 1951-02-28 to 2026-09-16 |
Last verified
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.
Where can I check the signals behind these results?
The Signal History card on this strategy page shows dated model decisions for the selected variant, subject to its access tier. 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 1951-02-28 to 2026-09-16 (75.5 years): 16.9% CAGR, 0.96 Sharpe, -46.5% max drawdown, 14.6% volatility.
- Type
- Tactical (TAA)
- Author
- Inspired by David Varadi (CSS Analytics)
- Rebalancing
- Monthly
- Risk
- Aggressive
- Period
- 1951-02-28 to 2026-09-16
- CAGR
- 16.9%
- Sharpe
- 0.96
- Max Drawdown
- -46.5%
- Volatility
- 14.6%
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 1951-02-28 to 2026-09-16, Inflation Compass returned 16.9% CAGR with a -46.5% maximum drawdown and a Sharpe ratio of 0.96. 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 (1951-02-28 to 2026-09-16)
| Metric | Inflation Compass |
|---|---|
| CAGR | 16.9% |
| Max Drawdown | -46.5% |
| Sharpe | 0.96 |
| Sortino | 1.70 |
| Volatility | 14.6% |
| Calmar | 0.36 |
| Total Return | 13615057.5% |
| Backtest Period | 75.5 years |
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.
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