Portfolio vs. 60/40 vs. S&P 500
All Data
10 Years
**S&P 500 backtest to 1972 and 60/40 backtest to 1970
Kipnis Defensive Adaptive Asset Allocation
Details
The Kipnis Defensive Adaptive Asset Allocation strategy was developed by Ilya Kipnis and detailed on his website QuantStrat TradeR.
It’s a strategy that takes parts from different tactical asset allocation strategies and blends them together.
This one in particular uses aspects of:
- Dual Momentum – to compare momentum across asset classes
- Adaptive Asset Allocation – applies a min variance optimization to determine asset weighting
- Vigilant Asset Allocation – measures momentum across multiple timeframes with different weighting applied to each
- Defensive Asset Allocation – has a “canary universe” to determine when to move to defensive assets
On average, the portfolio holds 29% in equities, 35% in bonds, and 36% in cash, real estate, commodities, and gold.
Average Asset Allocation & Recommended ETFs
Performance Metrics
All Data
10 Years
Annual Return
11.0%
Sharpe Ratio
0.97
10 Year Annual Return
4.0%
Volatility (annualized)
8.4%
Max Drawdown
-9.6%
Positive Periods
70.6%
Dot Com Annual Return
11.4%
Great Financial Crisis Return
12.4%
Trade Frequency
Monthly
Ulcer Performance Index
3.0
Strategy Rules
This strategy trades once per month.
There are three asset groups used in this strategy:
- Investment Universe: SPY, VGK, EWJ, EEM, VNQ, RWX, IEF, TLT, DBC, and GLD
- Crash Protection: IEF and Cash
- Canary: EEM and AGG
- On the last trading day of the month, calculate the momentum score for each asset listed above
- Momentum Score = (12*(p0/p1)) + (4*(p0/p3)) + (2*(p0/p6)) + (p0/p12) – 19
- p0 = today’s price, p1 = price at close of last month, etc…
- Select the top 5 (or less) assets from the Investment Universe that have a positive momentum score.
- Find the asset weighting with a covariance matrix using 1-month volatility estimates and weighted as follows:
- [(12 * 1-month correlation) + (4 * 3-month correlation) + (2 * 6-month correlation) + (12-month correlation)] / 19
- Find the percentage invested in the Investment Universe using the Canary assets
- If both Canary assets have a positive momentum score, invest 100% in the top 5 (or less) Investment Universe assets.
- If one Canary asset has a positive momentum score, invest 50% in Crash Protection and 50% in the Investment Universe
- If neither of the Canary assets have a positive momentum score, invest 100% of the portfolio in Crash Protection.
- If Crash Protection is being used, invest in IEF if it has a positive momentum score. Invest in Cash if it does not.
How to Invest in the Defensive Adaptive Asset Allocation Portfolio
M1 Finance is the recommended platform to invest in this portfolio. Find out why.
