Lowkey Overview
| CAGR | 10.5% |
|---|---|
| Maximum drawdown | -9.9% |
| MAR ratio | 1.06 |
| History | 29 years (358 months) |
Lowkey is a portfolio of two DMS strategies built for the investor who wants to set things up, check in occasionally, and get on with life. It holds Carrier and Permanent Portfolio DMS at 50% each, and rebalances back to those weights each January.
The short take: protection from major market declines, a good solid return, as little trading as possible, and long - not short term tax rates. No leverage, no complicated rules to follow, and a worst year that most people could sit through without reaching for the sell button.
A Different Balanced Portfolio
The 60/40 portfolio has a long history. Sixty percent stocks and forty percent bonds has been the default balanced portfolio for decades, the starting point for pension funds, target-date funds and countless advisors. The idea is sound: stocks provide growth, bonds cushion the falls.
It works as long as bonds rise when stocks fall. In 2022 they didn't. Stocks and bonds fell together, and the classic 60/40 had one of its worst years in decades.
Lowkey keeps the idea of a growth half and a cushioning half, and changes what is in each:
| Classic 60/40 | Lowkey | |
|---|---|---|
| Growth half | 60% in a stock index, always invested | 50% in Carrier, a stock-led strategy that steps aside when credit markets signal stress |
| Cushion half | 40% in a bond fund | 50% in Permanent Portfolio DMS, four quadrants built for prosperity, recession, inflation and crisis |
| Depends on | Bonds rising when stocks fall | Neither half depending on the other |
Why These Two
Carrier at 50%: the growth engine
Carrier reads the high yield credit spread, the extra yield investors demand to hold riskier corporate bonds. When that spread is calm, Carrier stays invested in a stock-led mix. When it signals stress, Carrier steps aside to Treasuries until conditions settle. It is designed to stay invested for long stretches and to favor long-term gains, which also means it trades rarely: its record averages about one regime change every 15 months.
On its own, Carrier compounds faster than anything else in this portfolio. Its weakness is speed. A fast selloff can arrive before credit markets react, and in those episodes Carrier takes the hit.
Permanent Portfolio DMS at 50%: the ballast
Permanent Portfolio DMS never takes a view. It holds four quadrants, long/short equity for prosperity, managed futures for recession, gold for inflation, and tail-risk convexity for crisis, and rebalances once a year. It is steady rather than exciting, and it tends to hold its ground exactly when stocks don't.
Why they work together
The two have a monthly correlation of 0.57, and more importantly they have their worst stretches at different times:
| Episode | Carrier | Permanent Portfolio DMS | Lowkey |
|---|---|---|---|
| Dot-com bust (Sep 2000 - Sep 2002) | +4.3% | +6.5% | +5.4% |
| Financial crisis (Nov 2007 - Feb 2009) | -8.6% | -2.6% | -5.5% |
| COVID crash (Feb - Mar 2020) | -15.2% | +1.0% | -7.1% |
| 2022 bear market (Jan - Oct 2022) | -11.4% | -0.4% | -5.9% |
In each of the major equity crises of the last three decades, Permanent Portfolio DMS stayed within a few points of flat. In the three where Carrier lost money, Lowkey cut the loss by roughly a third to a half.
Rebalancing and Trading
Lowkey resets to 50/50 in January, and only in January. In between, the weights drift with each strategy's returns.
In practice this means very little activity:
- January: reset Lowkey to 50/50. Permanent Portfolio DMS does its own annual rebalance at the same time.
- Occasionally during the year: Carrier changes between its invested and defensive positions when its signal says so.
Averaged over the full history, that comes to fewer than two trading months a year, and one of them is always January. Permanent Portfolio DMS also has drift triggers that can prompt a mid-year rebalance, but over this history they never fired.
Why the Record Starts in 1997
Carrier's signal depends on the high yield credit spread, and the spread history it uses begins at the end of 1996. The portfolio's history begins with it. Permanent Portfolio DMS has a longer record on its own page.
Performance Highlights
Over the full available history, alongside its two components:
January 1997 through October 2026, net of trading friction:
| CAGR | Max Drawdown | Ulcer Index | UPI | |
|---|---|---|---|---|
| Lowkey | +10.5% | -9.9% | 2.62 | 3.17 |
| Carrier | +12.8% | -16.2% | 4.77 | 2.23 |
| Permanent Portfolio DMS | +7.9% | -11.5% | 2.40 | 2.39 |
| S&P 500 | +9.8% | -51.0% | 15.09 | 0.50 |
The Ulcer Performance Index measures return against how deep the portfolio fell and how long it stayed down. Max Drawdown reports the worst single moment; the Ulcer Index reports the experience of holding it. Higher UPI is better.
Lowkey scores a higher UPI than either of its components, and a shallower worst decline than either. It gives up a little over two percentage points a year against Carrier alone, and in exchange its worst decline is cut from -16% to -10% and the day-to-day pain of drawdowns, as measured by the Ulcer Index, is cut by about 45%.
Against the classic 60/40
For comparison, a traditional 60/40 of large-cap US stocks and intermediate Treasuries, rebalanced each January over the same period, returned about 8.3% a year with a worst decline of about -27% and an Ulcer Index near 6.4. Lowkey earned more than two percentage points more per year with well under half the worst decline.
What a bad year looks like
Lowkey's worst calendar year was 2022 at -7.6%, the same year the classic 60/40 lost about 18%. It had three down years out of thirty. Its worst stretch was also 2022: down 9.9% from December 2021 to September 2022, and back above that high by mid-2023. The fast selloff of late 2018, too quick for Carrier's signal, came close, at -9.4%. Its worst rolling three-year period still returned a positive 2.6% a year.
Two cautions apply. These records are backtested, and parts of the history rely on reconstructed proxy data for funds that did not exist for the full period. And a figure covering three decades says nothing about the order the returns arrived in, which is most of what an investor actually lives through.
Portfolio Characteristics
- A different balanced portfolio. A growth half and a cushion half like the classic 60/40, with a regime-aware strategy in place of the stock index and an all-weather portfolio in place of bonds, at 50% each.
- No leverage. Maximum exposure is 100%, always.
- Two engines that fail at different times. A credit-driven growth strategy and a fixed four-quadrant all-weather portfolio.
- Very little trading. Fewer than two trading months a year on average, one of them January.
- Annual rebalancing at the top level. Weights reset each January and drift in between.
- Fully mechanical. Every allocation follows from published rules with no discretionary override.
Who It's For
Lowkey is designed for investors who want:
- Protection from major market declines without having to watch the market.
- A good solid return rather than the highest possible return.
- A portfolio they can manage themselves with a handful of trades a year.
- No leverage.
- A single portfolio to follow rather than two.
It is a poor fit for investors who want maximum growth and can tolerate deep declines to get it, or who are investing money they will need soon. Investors comfortable with more activity and some leverage should compare Quiet Compounding and the Calculated Risk family.
A note on CAOS history. CAOS, the tail-risk fund held through this portfolio's Permanent Portfolio DMS component, has real return history back to September 2013 through its mutual fund predecessor, AVOLX. There is no credible proxy for a tail-risk strategy before then, so rather than rely on a manufactured series, results before September 2013 use intermediate-term Treasuries (IEF) in its place. From September 2013 onward, all results use the actual fund.
A note on CLSE history. CLSE, the long/short equity fund held through this portfolio's Carrier and Permanent Portfolio DMS components, has real return history back to January 2010 through its mutual fund predecessor, MARNX. Before then, results use a blend of 70% U.S. large-cap stocks (IWB) and 30% Treasury bills (BIL), matching CLSE's typical net long exposure of roughly 70%. The blend captures the fund's market exposure but none of its stock-selection skill, so it is a deliberately conservative stand-in.
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 and component weights. Portions of the 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