Hybrid Asset Allocation (HAA) Overview

Hybrid Asset Allocation (HAA) is Wouter Keller and Jan Willem Keuning's 2023 strategy, and is widely followed. It watches a TIPS as an early warning signal, and as long as that signal is healthy it holds the four strongest of eight global assets, a quarter each. When the warning signal turns down, the entire portfolio moves to Treasuries.

The design goal was stated plainly in the paper: take the ideas from their more elaborate models and build something a retail investor could actually run. HAA is the result, and it is the simplest thing they have published in years.

Dual Momentum Systems tracks it as a benchmark.

The Backstory

The problem HAA was built to solve

Keller and Keuning spent roughly a decade adding machinery. Each model answered a weakness in the last, and each was more elaborate than the one before it. By the time Bold Asset Allocation arrived in 2022, the design involved separate universes for offense, defense and early warning, different momentum formulas for different jobs, and a set of rules governing how they interacted.

The results were good. The complexity was a problem anyway, for two reasons. A strategy with many interacting parts is hard for an ordinary investor to execute without mistakes, and it is hard for anyone, including its authors, to be confident that the parts are earning their keep rather than fitting the past.

HAA was the deliberate answer. The paper says directly that it takes Bold Asset Allocation as its inspiration and aims for something much simpler, balanced and aggressive at once, aimed at retail investors. Fewer moving parts, one early warning asset instead of several, one momentum formula used everywhere.

Why TIPS as the early warning signal

The choice that defines HAA is what it watches. Earlier models used equity or credit assets as their warning signals. HAA watches inflation-protected Treasuries, and the paper's title names the reason: rising yields and inflation.

The logic is worth spelling out. Inflation-protected Treasuries fall when real interest rates rise. They are also bonds, so they fall when the bond market is under stress generally. What they largely ignore is inflation itself, since the inflation adjustment is built into them. So a decline in this one asset is a fairly clean signal that the cost of money is rising, which is the condition that hurts nearly every asset class at once.

That was the lesson of 2022, when stocks and bonds fell together and strategies that retreated into bonds discovered their safe harbor was the thing sinking them. A warning signal tied to real rates catches that setup, where a warning signal tied to equities does not.

The authors also made this signal less trigger-happy than their earlier ones. In their more aggressive models, a single bad asset among a handful sends the whole portfolio defensive, which produces frequent exits and a lot of whipsaw. HAA watches one asset and asks only whether it is trending down. The effect is a strategy that stays invested through ordinary turbulence and reacts decisively to the kind that matters.

Where it sits in their body of work

HAA is the most recent link in a long chain: Protective Asset Allocation in 2016 introduced breadth-driven defense, Generalized Protective Momentum added correlation-aware scoring the same year, Vigilant and Defensive Asset Allocation refined the early warning idea in 2017 and 2018, and Bold Asset Allocation pushed it furthest in 2022.

HAA is the one that turns around and simplifies. That is a harder thing for a researcher to do than adding another refinement.

Why this site carries it

HAA is a popular tactical allocation strategy, which makes it a natural point of comparison for any strategy claiming to do this job well. Its warning signal is also unusual: most tactical models read the trend of the assets they might hold, while HAA reads the price of money. Catalyst, built here, works from a macro read as well, though it resolves an inflation and growth regime rather than watching one asset. Running both on the same data, with the same costs, is the only honest way to compare different strategies.

Core Strategy Logic

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

Every asset is scored the same way: average its returns over the past 1, 3, 6 and 12 months, with each period counting equally. That one number does all three jobs below.

Step 1 - Check the canary

Score inflation-protected Treasuries (TIP). If that score is zero or negative, the strategy skips everything else and puts 100% of the portfolio into the better of its two defensive holdings. No offensive positions at all.

Step 2 - Rank the eight and take the top four

If the canary is healthy, score all eight offensive assets and rank them. The top four each get 25%.

Step 3 - Check each pick individually

A pick that made the top four can still have a negative score, which just means it was the best of a bad set. Any such pick is dropped and its 25% goes to the defensive side instead. This is what keeps a top-four ranking from forcing the strategy to buy things that are falling.

Step 4 - Choose the defensive holding

Wherever the portfolio is defensive, whether a single 25% slot or the whole thing, the money goes into either T-bills (BIL) or intermediate Treasuries (IEF), whichever scores higher. In a falling-rate environment the intermediate Treasuries usually win and add return; when rates are rising, the strategy sits in bills instead of holding bonds that are losing money.

The portfolio is rebalanced to fresh target weights every month.

The universe

Category	Assets
U.S. equities	large cap (VOO), small cap (IWM)
Foreign equities	developed markets (VEA), emerging markets (EEM)
Alternatives	commodities (PDBC), real estate (VNQ)
U.S. bonds	intermediate Treasuries (IEF), long Treasuries (TLT)

Canary: inflation-protected Treasuries (TIP). Defensive: T-bills (BOXX) or intermediate Treasuries (IEF).

The eight offensive assets are two from each of four categories, which is deliberate. Even when a single category is sweeping the rankings, the strategy is choosing from a genuinely varied set rather than from eight flavors of equity risk.

Three separate ways to end up defensive

This is the structure worth understanding, because it is where HAA's record comes from.

1. The canary. One asset can send the entire portfolio to Treasuries regardless of how good everything else looks.
2. The ranking. An asset has to be in the top four to be held at all.
3. The individual check. Even a top-four asset is dropped if its own score is negative.

Three independent tests, each able to move money to safety on its own. That is why the strategy's worst historical declines are so shallow relative to what it holds.

A Note on the Long History

The figures below start in 1980, which is worth a caveat specific to this strategy.

Inflation-protected Treasuries did not exist in the United States until 1997. Every month before that, the canary signal has to be reconstructed from a modeled series rather than taken from a real security. The reconstruction is reasonable and follows standard practice, but it is a model, and the canary is the single most important input HAA has.

The practical implication: the strategy's pre-1997 record rests on a signal that could not have been traded at the time. Its record since 1997, which includes two bear markets of roughly half and the 2022 stock-and-bond decline, uses the real thing.

Performance Highlights

Over the full published history, alongside the model HAA was built to simplify:

January 1980 through August 2026, net of trading friction:

	CAGR	Max Drawdown	UPI
Hybrid Asset Allocation	+14.1%	-9.6%	3.64
Bold Asset Allocation - Balanced	+11.7%	-11.8%	2.28
Bold Asset Allocation - Aggressive	+15.4%	-21.3%	1.87
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 much time the strategy spent underwater and how deep it went. Max Drawdown reports the single worst moment; UPI reports the whole experience of holding the thing. Higher is better.

This is an unusually good table, and it explains the strategy's popularity better than any argument could.

HAA beats the balanced version of the model it simplified on every column, which is rare. Simplification normally costs something. Against the aggressive version, HAA gives up some return and takes less than half the worst decline, and its UPI is nearly twice as high.

Against the index, it earns more per year with a worst decline in the single digits, and a UPI several times larger.

Triad is the row worth sitting with. Built here rather than published, it earns more than HAA over the full history with a deeper worst decline, and comes out slightly ahead on UPI. Two strategies arriving at similar destinations by different routes is the most useful thing a comparison table can show.

The obvious caution is that HAA was published in 2023 and nearly this entire record is backtested. Its authors had the full history in front of them when choosing the canary asset and the universe. That is true of most published strategies, and it is a reason to expect the live record to be less impressive than the tested one.

The same five, measured from January 2000:

January 2000 through August 2026, net of trading friction:

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

The recent window holds up for HAA. Returns come down across the board, as they do for nearly every strategy measured from 2000, and HAA's worst decline is identical in both tables, meaning the deepest drawdown of the whole record happened after 2000. Holding under 10% through the dot-com decline, 2008 and 2022 is a genuinely hard thing to do.

The gap to Triad opens up here. Note also that UPI moves in opposite directions for the two: HAA's slips, Triad's improves, which says the recent quarter century was the better half of Triad's record and the flatter half of HAA's.

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

• Simple to run. Ten funds total, one momentum calculation, one check a month. The least demanding of the authors' models by a wide margin.
• Canary-driven defense. A single asset can move the entire portfolio to safety, which makes the strategy's biggest decision dependent on one signal.
• Structurally diversified offense. Two assets from each of four categories, so the candidate list is never all equities.
• Layered protection. Three independent tests, each able to move money defensive on its own.
• Partial or total defense. The portfolio can be 25%, 50%, 75% or 100% defensive depending on which tests fire.
• Two defensive speeds. T-bills or intermediate Treasuries, whichever is stronger, so the defensive position does not become a losing trade when rates rise.
• Monthly rebalancing. Target weights are reset every month rather than left to drift.
• No leverage. HAA never holds a leveraged fund.
• Best suited to tax-deferred accounts. Monthly rebalancing and frequent rotation 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

HAA is designed for investors who want:

• The most widely followed tactical allocation strategy of the current era, run as published.
• Shallow drawdowns as the primary objective, with competitive returns alongside.
• A defensive trigger tied to interest rates and real yields rather than to equity trends.
• Execution simple enough to run reliably without software.
• A rules-based process with no market-timing judgment calls.

It is a poor fit for investors who are uncomfortable with a single signal governing the entire portfolio, who want the deep history to rest entirely on real securities, or who trade in a taxable account. Investors who want the authors' more aggressive approach should compare it with Bold Asset Allocation - Aggressive. Those looking for a similar drawdown profile from strategies designed here should look at Triad and Quiet Compounding.

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Hybrid Asset Allocation was created by Wouter Keller and Jan Willem Keuning and is presented here as an independent implementation, with standard fund substitutions. Dual Momentum Systems is not affiliated with or endorsed by either 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