Bold Asset Allocation - Balanced Overview

Bold Asset Allocation - Balanced (BAA-B) watches four assets as an alarm system and never holds them. When all four are trending up, the strategy holds the six strongest of twelve global assets, a sixth each. When any one of the four turns down, the entire portfolio moves to a defensive universe of seven assets, holding the best three of those, and any of the three that cannot beat T-bills is replaced by T-bills.

The number that defines this strategy is 60%. That is roughly the share of months it spends on the defensive side, which sounds like a description of a strategy that never makes money. It is instead the key to how BAA works: the defensive side is not cash, it is a second portfolio with its own momentum ranking, and it is expected to earn.

Dual Momentum Systems tracks BAA-B as a benchmark and as the parent of the strategy that eventually simplified it.

The Backstory

An intentionally aggressive design

Wouter Keller published Bold Asset Allocation in July 2022, crediting Jan Willem Keuning among those who shaped it. The stated aim was direct: build a very offensive tactical strategy by combining lessons from their three earlier models, Protective, Vigilant and Defensive Asset Allocation.

The timing matters. The paper's full title refers to rising and low yields, and it arrived in the middle of 2022, when the bond market was having its worst year in decades and the usual defensive playbook was failing in real time. Any strategy that responded to trouble by buying bonds was walking into the fire. BAA was built with that problem in view.

Two speeds of momentum

BAA's first idea is that the alarm and the shopping list should run at different speeds.

The alarm is fast. The four canary assets are scored with a weighted measure that leans heavily on the most recent month. The last month alone accounts for roughly 40% of the score, and the twelfth month back for about 2%. The point of the alarm is to go off early, so it is tuned to react.

The selection is slow. The assets actually being ranked for purchase are scored against their own 12-month average price, a measure that changes gradually. Ranking should not flip the whole portfolio because of one noisy month.

Most tactical strategies use one momentum measure for everything. Using a fast one where speed helps and a slow one where stability helps is a small idea with a large effect.

The idea that makes it work

The second and more important idea is what "defensive" means.

Consider the arithmetic. If a strategy is defensive 60% of the time and defensive means T-bills, then most of its life is spent earning the cash rate, and no amount of skill on the other 40% will produce a good long-run return. A strategy that cautious has to be wrong.

BAA's answer is to give the defensive side its own opportunity set: seven assets spanning inflation-protected Treasuries, commodities, T-bills, intermediate and long Treasuries, corporate bonds and aggregate bonds. Defensive mode ranks those seven, holds the best three, and checks each against T-bills before buying it. So "defensive" often means holding commodities during an inflation shock, or long Treasuries during a deflationary scare, or actual T-bills when nothing else is working.

This is what the 2022 context produced. A defensive universe that includes real assets and lets each pick be overruled by cash is a direct answer to the year when bonds stopped being safe.

The canary is all or nothing

The third piece is the trigger itself. Four assets are watched: U.S. equities, developed international equities, emerging market equities and aggregate bonds. Any single one of them trending down moves the entire portfolio to the defensive side. Not a fraction, not a proportional dial, all of it.

That is a deliberately jumpy trigger, and it is why the strategy sits defensive so much of the time. It is also why the strategy's worst declines are modest. A watch list spanning three equity regions and the bond market rarely stays uniformly healthy through the early stages of real trouble.

What came next

BAA is the high-water mark of the authors' complexity: three universes, two momentum formulas, an all-or-nothing trigger, and a defensive side with its own selection logic. The results were strong enough to attract wide attention, and elaborate enough to raise reasonable questions about whether every part was earning its place.

Their own answer came the following year. Hybrid Asset Allocation takes BAA as its inspiration and strips it down for retail investors, and on this site's data the simpler model comes out ahead. That is unusual and worth knowing before adopting either.

Core Strategy Logic

BAA-B is evaluated once a month. Signals come from month-end data and set the holdings for the following month.

Step 1 - Check all four canaries

Score the four canary assets with the fast weighted measure.

• All four positive: offensive mode.
• Any one at or below zero: defensive mode.

The canary assets are signals only. They are never held on account of being canaries, though two of them also appear in the offensive universe and one in the defensive universe.

Step 2a - Offensive mode

Score all twelve offensive assets with the slow measure, rank them, and hold the top six at one sixth each. No further test is applied to the picks. The canary has already answered the question of whether it is safe to be invested.

Step 2b - Defensive mode

Score all seven defensive assets with the same slow measure, rank them, and take the top three at a third each. Then check each pick against T-bills: if a pick's momentum is below the T-bill reading, that third goes to T-bills instead. Slots landing on the same asset combine.

So defensive mode can be anything from three real positions to a portfolio entirely in T-bills, depending on whether anything is actually working.

The portfolio is rebalanced to fresh targets every month.

The three universes

Canary, signal only:

Asset	Role
VOO	U.S. equities
VEA	Developed international equities
EEM	Emerging market equities
BND	U.S. aggregate bonds

Offensive, twelve candidates, top six held:

Category	Assets
U.S. equities	large cap (VOO), Nasdaq 100 (QQQ), small cap (IWM)
International equities	Europe (VGK), Japan (EWJ), emerging markets (EEM)
Real assets	real estate (VNQ), commodities (PDBC), gold (SGOL)
Credit and duration	long Treasuries (TLT), high yield (HYG), corporate bonds (LQD)

Defensive, seven candidates, top three held:

Asset	Role
TIP	Inflation-protected Treasuries
PDBC	Commodities
BOXX	T-bills, also the yardstick every pick must beat
IEF	Intermediate Treasuries
TLT	Long Treasuries
LQD	Corporate bonds
BND	Aggregate bonds

Balanced against Aggressive

The two published versions share everything above except the offensive side.

	Balanced	Aggressive
Offensive candidates	12	4
Offensive holdings	Top 6, a sixth each	Top 1, the whole portfolio
Canary	Identical	Identical
Defensive universe and rules	Identical	Identical

That single difference changes the character completely. Balanced spreads risk-on months across six positions; Aggressive puts everything into one fund and accepts the consequences.

Performance Highlights

Over the full published history, alongside the aggressive version and the model that later simplified it:

January 1980 through August 2026, net of trading friction:

	CAGR	Max Drawdown	UPI
Bold Asset Allocation - Balanced	+11.7%	-11.8%	2.28
Bold Asset Allocation - Aggressive	+15.4%	-21.3%	1.87
Hybrid Asset Allocation	+14.1%	-9.6%	3.64
Triad	+14.9%	-13.8%	3.94
S&P 500	+12.0%	-51.0%	0.61

The third column is the Ulcer Performance Index: return above cash divided by how deep the strategy went and how long it stayed there. Max Drawdown reports the worst single moment; UPI reports the experience of holding it. Higher is better.

Start with the index row. BAA-B roughly matches the S&P 500's long-run return while holding its worst decline to about a fifth of the index's, and its UPI is several times larger. For a strategy that is out of the offensive universe most of the time, that is a strong result and a vindication of the enhanced defensive universe. Cash for 60% of four decades would have produced nothing like it.

The harder comparison is with Hybrid Asset Allocation, the model built to simplify this one. HAA earns more per year, declines less at its worst and scores far better on UPI. The simplification did not cost anything, which raises a fair question about whether BAA's extra machinery was doing real work or fitting the past.

Against its own aggressive sibling, BAA-B gives up a large amount of annual return and takes roughly half the drawdown, coming out ahead on UPI. That is the trade the two versions exist to offer.

Triad is shown because it is the closest comparison among strategies built here, and it leads both BAA versions on return per unit of pain.

One caution applies to every row in this table except the index. BAA was published in 2022 and nearly all of this record is backtested, with the author having seen the full history when choosing the universes and the momentum measures.

The same five, measured from January 2000:

January 2000 through August 2026, net of trading friction:

	CAGR	Max Drawdown	UPI
Bold Asset Allocation - Balanced	+9.9%	-11.8%	2.07
Bold Asset Allocation - Aggressive	+11.9%	-19.0%	1.70
Hybrid Asset Allocation	+11.5%	-9.6%	3.56
Triad	+14.2%	-8.6%	4.93
S&P 500	+8.0%	-51.0%	0.39

The ordering survives the shorter window. BAA-B beats the index on all three measures here rather than trading return for safety, which is what a period containing two halvings and a stock-and-bond decline does to a buy-and-hold comparison. Its worst decline is identical in both tables, so the deepest drawdown of the whole record came after 2000.

Two cautions apply as always. A window starting in January 2000 begins shortly before a major bear market, which flatters strategies that step aside during one. And a single figure covering decades says nothing about the order the returns arrived in, which is most of what an investor lives through.

Portfolio Characteristics

• Defensive most of the time. Roughly 60% of months are spent in the defensive universe. This is the design working, not failing.
• Defense that earns. Seven defensive candidates including commodities and inflation-protected Treasuries, not a cash parking spot.
• T-bills as the floor. Every defensive pick must beat T-bills or be replaced by them, so the strategy can end up fully in cash when nothing works.
• All-or-nothing trigger. One weak canary moves the entire portfolio. There is no partial risk-off.
• Two momentum speeds. A fast measure for the alarm, a slow one for selection.
• Diversified when invested. Six holdings from a twelve-asset list spanning equities, real assets, credit and duration.
• Seventeen funds in play. More instruments to track than most strategies here, and the most complex of the authors' published models to execute.
• Monthly rebalancing. Fresh target weights every month.
• No leverage. BAA-B never holds a leveraged fund.
• Best suited to tax-deferred accounts. Frequent mode switches and monthly rebalancing generate short-term gains. In a taxable account, plan accordingly.
• Fully mechanical. Every allocation follows from published rules with no discretionary override.

Who It's For

BAA-B is designed for investors who want:

• A strategy that spends most of its time defensive without giving up the returns that usually implies.
• An early, decisive trigger rather than a gradual reduction in risk.
• A defensive position that can hold real assets when bonds are the problem.
• Diversification across six holdings during risk-on months.
• A rules-based process with no market-timing judgment calls.

It is a poor fit for investors who want a simple portfolio to execute, who would be frustrated sitting defensive through parts of a rising market, or who trade in a taxable account. Investors who want the same machinery with a far more concentrated offense should look at BAA - Aggressive. Those who want this approach with fewer moving parts should compare it with Hybrid Asset Allocation, the authors' own simplification, which performs better on this site's data.

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Bold Asset Allocation was created by Wouter Keller and is presented here as an independent implementation, with standard fund substitutions. Dual Momentum Systems is not affiliated with or endorsed by the author. The original paper is available at SSRN.

Past performance, including backtested results, is not indicative of future results. Backtested performance is hypothetical, does not reflect actual trading, and benefits from hindsight in the selection of strategy rules. Portions of the long-term history rely on reconstructed proxy data for funds that did not exist for the full period. Investors should carefully consider their risk tolerance and consult with a financial advisor.

For the latest details, visit www.DualMomentumSystems.com