Robin Bowerman, Principal and Head of Retail at Vanguard, has written a recent article for Vanguard's Smart Investing e-newsletter - Playing defence: can it work in tough markets. In the article Bowerman refers to a Vanguard study looking at whether investors would be better off using economic / market signals to move portfolios into a more defensive asset allocation ahead of market downturns. This is extremely relevant to those who have asked themselves whether they should have moved more of their portfolios into cash and fixed interest earlier in the year.
The article firstly concluded that economic or market signals were not necessarily good predictors of future downturns. However, if the signals were used, the end results were at best a small out-performance against continuing to hold your assets. The authors of the Vanguard study concluded that the excess results were not statistically different from zero. So basically the conclusion was that investors would be no better off trying to move their portfolio into a more defensive position.
Bowerman suggests that a better strategy is to incorporate defensive assets into a portfolio.
An interesting article well worth a read.