Bold Asset Allocation - Balanced

BAA (Bold Asset Allocation), Balanced is Keller & Keuning's most ambitious model, pulling together the best ideas from three of their earlier strategies into a single set of rules. Four "canary" assets stand in for the health of global markets: U.S. large caps, developed international stocks, emerging markets, and U.S. aggregate bonds. Every one of them has to show positive momentum for BAA to take risk. If even a single canary weakens, the entire portfolio moves to the defensive side. That is a deliberately jumpy trigger, and it is meant to be: BAA would rather be early and wrong than late and hurt, and historically it has spent roughly 60% of months positioned defensively.

When all four canaries are healthy, BAA ranks a twelve-asset offensive universe by a slow momentum measure that compares each price to its own twelve-month average. It buys the strongest six in equal weight, spanning U.S. large caps, technology, small caps, Europe, Japan, emerging markets, real estate, commodities, gold, long Treasuries, high yield, and corporate bonds. There is no separate trend check on those picks, because the canary has already made that judgment for the whole portfolio.

When a canary fails, BAA turns to a seven-asset defensive universe of TIPS, commodities, T-bills, intermediate and long Treasuries, corporate bonds, and aggregate bonds. It takes the three strongest, and then applies one more test that sets BAA apart from most defensive playbooks: any pick that cannot outrun plain T-bills is replaced by T-bills. Strategies that simply dump into long Treasuries when trouble arrives were rescued for forty years by falling interest rates. BAA refuses to make that assumption, and that single rule is the most durable idea in the model.

The portfolio is rebalanced fresh every month whether or not the signals changed, so turnover is high and gains are mostly short-term. BAA is best suited to a tax-deferred account. Its published backtest is also unusually strong, which is worth treating with some caution, since the strategy stacks several historically successful ideas on a universe selected with the benefit of hindsight.

BAA Balanced uses no leverage. For more details, see Relative and Absolute Momentum in Times of Rising/Low Yields: Bold Asset Allocation.