Protective Asset Allocation by Keller and Keuning
The Protective Asset Allocation portfolio was created by Wouter Keller and Jan Willem Keuning, published in their 2016 paper Protective Asset Allocation (PAA): A Simple Momentum-Based Alternative for Term Deposits. The strategy uses the breadth of positive momentum across a 12-asset global universe as its crash protection signal: the more assets showing negative momentum, the more the portfolio shifts to a defensive bond holding.
Investment Philosophy
Each month, the strategy measures momentum for each of 12 risky assets spanning global equities, real assets, and fixed income. The proportion of assets showing negative momentum determines how much of the portfolio moves to bonds -- a gradual, continuously scaling response rather than a binary all-in or all-out switch. When most assets are trending positively, the portfolio holds the top six by momentum. As more assets turn negative, the defensive allocation rises proportionally. The breadth mechanism means the portfolio's defensiveness reflects the overall health of global risk markets, not just the trend of a single indicator.
Who It's For
This portfolio suits investors who want systematic crash protection with a gradual response to deteriorating market conditions. The scaling mechanism avoids the abrupt all-or-nothing switches that characterize some other trend-following strategies. It is appropriate for medium-to-long time horizons and investors who want an academically validated, rules-based framework.
Pros
- Breadth protection provides a smooth, graduated shift to defensive positioning as markets deteriorate
- Broad 12-asset global universe captures return sources across equities, real assets, and bonds
- Backed by a published academic paper with extensive historical testing
Cons
- Can spend significant time in defensive positions even during moderate pullbacks, due to the sensitivity of the 12-asset breadth measure
- More complex to implement than static portfolios -- requires monthly momentum calculation across 12 assets
- Like all trend-following strategies, can lag during rapid V-shaped recoveries
Technical Notes
Momentum is measured as each asset's current price relative to its 12-month simple moving average. The cash fraction scales continuously from 0% to 100% based on the count of assets with negative momentum. The offensive universe includes US large, mid, and small-cap equities; European, Japanese, and emerging market equities; real estate; commodities; gold; high-yield, investment-grade, and long-term Treasury bonds. The defensive asset is intermediate-term US Treasuries. Rebalancing occurs monthly. For Keller and Keuning's later strategy that addresses the high defensiveness of PAA by introducing a dedicated canary signal, see Defensive Asset Allocation.
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Average Allocation
Based on historical average weights across all rebalance periods.
Performance Snapshot
Rolling Returns
| Period | Low | Average | High |
|---|---|---|---|
| 1 Year | -18.2% | +12.2% | +57.1% |
| 3 Year | -3.6% | +12.2% | +33.0% |
| 5 Year | +2.1% | +12.4% | +29.4% |
| 10 Year | +3.9% | +12.7% | +23.4% |
Growth of $10,000
Historical Drawdown
Percentage decline from the portfolio's peak value at each point in time.
Rolling Returns
Annualised return for each rolling period ending on that date.
Annualised return for each 1Y period ending on that date.