Elastic Asset Allocation
Weights ∝ return × diversification ÷ volatility.
Published versions of this model differ in the details. This implementation is still being checked against the original paper, so treat its numbers as provisional.
Holding now
Signal from Aug 2026 close- DBC51%
- BIL29%
- SPY9.3%
- EFA7.0%
- EEM4.3%
- DBCCommodities50.8%
- BILT-Bills28.6%
- SPYS&P 5009.3%
- EFAIntl Developed (EAFE)7.0%
- EEMEmerging Markets4.3%
Trailing returns
Through Sep 25, 2026 · 3Y+ annualised1M
+2.1%
YTD
+11.1%
1Y
+14.8%
3Y
+10.1%
5Y
+7.7%
10Y
+6.6%
Growth of $100
Backtest from Mar 1, 2007 to Sep 25, 2026 (19.5 years)
Growth of $100, rebased to the start of the selected range. Month-end prices, dividends reinvested, no taxes or trading costs.
Risk & return, full backtest
CAGR
+6.1%
Volatility
8.0%
Max drawdown
-14.3%
Sharpe
0.61
Sortino
0.85
Calmar
0.43
Best year
+20.8%
Worst year
-7.8%
Drawdowns
Percent below the prior peak, vs the S&P 500
Calendar-year returns
Faded bars are partial years · 59% of months positive
Strategy Lab
Stress-test the implementation: trade on the signal day's close or later, split the portfolio into tranches that rebalance on different days (reduces timing luck), use managed futures instead of T-bills as the defensive asset, or swap a fund for a same-asset-class alternative.
The idea
EAA scores each asset as z = r × (1 − c) / v: blended momentum times its diversification benefit (one minus correlation with the equal-weight universe) over volatility. The top four by z are weighted in proportion to z, and a crash-protection rule moves the share of assets with non-positive momentum to cash.
The rules
- 1Universe: SPY, EFA, EEM, VNQ, DBC, IEF, TLT.
- 2z = r^1 × (1 − c)^1 / v^1 with r = average 1, 3, 6, 12-month return; c and v from 12 monthly returns.
- 3Hold the top 4 by z, weighted ∝ z.
- 4Cash fraction = number of assets with non-positive r ÷ 7.
Funds used
- DBC Commodities
- EEM Emerging Markets
- EFA Intl Developed (EAFE)
- IEF 7-10Y Treasuries
- SPY S&P 500
- TLT 20+Y Treasuries
- VNQ US REITs
Early history uses proxy funds: SHY.
Recent allocations
Decided at each month-end, held the following month
- Aug 2026
- Jul 2026
- Jun 2026
- May 2026
- Apr 2026
- Mar 2026
- Feb 2026
- Jan 2026
- Dec 2025
- Nov 2025
- Oct 2025
- Sep 2025
More risk-aware momentum
Adaptive Asset Allocation
Butler, Philbrick & Gordillo
Top 5 of 10 by momentum, weighted for minimum variance.
Inverse-Volatility GTAA
Risk-weighted variant
GTAA Aggressive picks, sized by inverse volatility.
Classical Asset Allocation
Wouter Keller et al.
Momentum picks, then mean-variance to a 10% volatility target.