Portfolio vs. 60/40 vs. S&P 500
All Data
10 Years
**S&P 500 backtest to 1972 and 60/40 backtest to 1970
Protective Asset Allocation by Keller and Keuning
Details
The Protective Asset Allocation strategy was developed by Wouter Keller and JW Keuning.
It’s based off their paper Protective Asset Allocation (PAA): A Simple Momentum-Based Alternative for Term Deposits.
The strategy uses dual momentum to determine what assets to hold but has a very aggressive portfolio protection mechanism in case of a market crash.
Their goal was to make an “appealing alternative for a 1-year term deposit.”
Average Asset Allocation & Recommended ETFs
Performance Metrics
All Data
10 Years
Annual Return
12.1%
Sharpe Ratio
0.88
10 Year Annual Return
4.8%
Volatility (annualized)
8.3%
Max Drawdown
-18.2%
Positive Periods
70.0%
Dot Com Annual Return
7.7%
Great Financial Crisis Return
10.6%
Trade Frequency
Monthly
Ulcer Performance Index
2.3
Strategy Rules
- On the last trading day of each month, calculate a momentum score for all of the assets listed above.
- The momentum score (MOM) = p0/SMA(12) – 1
- p0 = price on last trading day of the month
- SMA(12) = 12-month simple moving average
- Next we determine the % of the portfolio that is allocated to the “safe” asset. For this recommendation, the “safe” asset is IEF. This is done by determining how many “good” and “bad” assets are in our list of funds. n=number of funds with a MOM > 0.
- If n<=6, the entire portfolio is invested in the “safe” asset.
- If n>=7
- The % of the portfolio invested in the “safe” asset = (12- n ) / 6
- The remaining portfolio is divided equally among the 6 assets with the highest MOM score.
- Hold positions until the last trading day of the next month. Rebalance the entire portfolio even if there is not a change in positions.
How to Invest in the Protective Asset Allocation Portfolio
M1 Finance is the recommended platform to invest in this portfolio. Find out why.
