Protective Asset Allocation
The bond share rises as more assets lose momentum.
Higher overfitting risk: these models have many parameters chosen with hindsight. Expect live results to trail the backtest.
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- IEF33%
- GSG11%
- EEM11%
- EWJ11%
- IWM11%
- QQQ11%
- SPY11%
- IEF7-10Y Treasuries33.3%
- GSGCommodities (GSCI)11.1%
- EEMEmerging Markets11.1%
- EWJJapan11.1%
- IWMUS Small Cap11.1%
- QQQNasdaq 10011.1%
- SPYS&P 50011.1%
Trailing returns
Through Sep 25, 2026 · 3Y+ annualised1M
+0.2%
YTD
+17.8%
1Y
+23.9%
3Y
+15.9%
5Y
+6.0%
10Y
+7.7%
Growth of $100
Backtest from May 1, 2008 to Sep 25, 2026 (18.3 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
+7.1%
Volatility
9.3%
Max drawdown
-20.4%
Sharpe
0.65
Sortino
0.91
Calmar
0.35
Best year
+15.4%
Worst year
-15.6%
Drawdowns
Percent below the prior peak, vs the S&P 500
Calendar-year returns
Faded bars are partial years · 61% 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), or swap a fund for a same-asset-class alternative.
The idea
PAA measures breadth across 12 risky assets with momentum = price / 13-month SMA − 1. The fewer assets with positive momentum, the more goes to Treasuries, scaled by a protection factor (a = 2 here, where six or fewer positive assets means fully defensive). The risky slice holds the top six.
The rules
- 1Momentum = price / 13-month SMA − 1 for 12 risky assets.
- 2Bond fraction = (12 − n) / (12 − a·12/4) with a = 2, where n = assets with positive momentum.
- 3Risky slice: top 6 by momentum, equal weight. Bond slice: IEF.
Funds used
- EEM Emerging Markets
- EWJ Japan
- GLD Gold
- GSG Commodities (GSCI)
- HYG High Yield Bonds
- IEF 7-10Y Treasuries
- IWM US Small Cap
- IYR US REITs
- LQD IG Corporate Bonds
- QQQ Nasdaq 100
- SPY S&P 500
- TLT 20+Y Treasuries
- VGK Europe
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 crash protection
Vigilant Asset Allocation (G4)
Wouter Keller & JW Keuning
Fully defensive the moment any risk asset turns down.
Defensive Asset Allocation
Wouter Keller & JW Keuning
Two trigger assets decide how much of a 12-asset book stays at risk.
Bold Asset Allocation (Balanced)
Wouter Keller
Four trigger assets, a hair-trigger switch, and a trimmed defense.