Portfolio vs. 60/40 vs. S&P 500
All Data
10 Years
**S&P 500 backtest to 1972 and 60/40 backtest to 1970
Defensive Asset Allocation by Keller and Keuning
Details
The Defensive Asset Allocation strategy was developed by Wouter Keller and JW Keuning.
It is based off their paper:
Breadth Momentum and the Canary Universe: Defensive Asset Allocation (DAA)
The strategy uses a momentum approach that is heavily weighted towards more recent months.
It also uses a system the authors call “breadth momentum” to determine how much to shift to defensive positions.
The strategy, on average, allocates 43% to equities, 40% to bonds, and 17% to REITs, Gold, and Commodities.
Average Asset Allocation & Recommended ETFs
Performance Metrics
All Data
10 Years
Annual Return
13.8%
Sharpe Ratio
0.99
10 Year Annual Return
4.8%
Volatility (annualized)
9.1%
Max Drawdown
-16.6%
Positive Periods
70.2%
Dot Com Annual Return
2.3%
Great Financial Crisis Return
13.8%
Trade Frequency
Monthly
Ulcer Performance Index
2.5
Strategy Rules
The strategy has three main categories:
- Risky: SPY, IWM, QQQ, VGK, EWJ, EEM, VNQ, DBC, GLD, TLT, HYG, LQD
- Protective: SHY, IEF, LQD
- Canary: EEM, AGG
- On the last trading day of the month, calculate a momentum score for all the assets 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…
- The number of “canary” assets with a positive momentum score will determine our portfolio allocation. n = # of canary assets with a negative momentum score
- If n=2,
- 100% of the portfolio is invested the protective asset with the highest momentum score
- if n=1,
- 50% of the portfolio is invested in the protective asset with the highest momentum score
- 50% of the portfolio is invested equally in the 6 “risky” assets with the highest momentum score.
- if n=0,
- 100% of the portfolio is invested equally in the 6 “risky” assets with the highest momentum score.
- If n=2,
- Hold all positions until the close of the following month.
How to Invest in the Defensive Asset Allocation Portfolio
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