Vigilant Asset Allocation - Aggressive Overview

Vigilant Asset Allocation - Aggressive (VAA-A) is Wouter Keller and Jan Willem Keuning's 2017 strategy, and the one that introduced breadth momentum: the idea that the decision to take risk off should be made by counting how many assets are failing rather than by testing each holding on its own.

The aggressive version applies that idea at its most severe setting. Four assets are watched: U.S. equities, developed international equities, emerging market equities and aggregate bonds. If all four have positive momentum, the strategy puts 100% of the portfolio into the single strongest of them. If even one of the four is negative, the entire portfolio moves to the best of three defensive bonds.

One bad asset out of four, and everything comes off the table. The paper's subtitle says the rest: winning more by losing less.

Dual Momentum Systems tracks VAA-A as a benchmark.

The Backstory

Crash protection at the wrong level

Before VAA, the standard way to add crash protection to a momentum strategy was to test each holding individually. Rank your universe, take the top few, and replace any pick that fails a trend test with cash. Antonacci's dual momentum works this way, as does Faber's timing model.

Keller and Keuning's argument was that this asks the question too late and in the wrong place. If you hold the top three out of twelve assets and only exit when your own picks turn negative, you are waiting until roughly ten of the twelve have already broken down. The information that trouble is spreading was available much earlier, in the assets you did not buy.

Their fix was to move the question up a level. Count how many assets in the universe have bad momentum, and let that count set how much of the portfolio comes off the table. They called it breadth momentum, and it replaced asset-level trend-following with a universe-level measurement.

The trade-off is visible in the paper's own summary: the strategy ends up out of the market more than half the time. That sounds ruinous for returns, and the paper's whole argument is that it is not, because the months it misses are disproportionately the bad ones.

The aggressive setting

VAA is a family rather than a single strategy. Two numbers set its character: how many assets to hold when invested, and how many failing assets it takes to go fully defensive.

The aggressive version, built on a four-asset universe, sets both to one. Hold one asset. One failure sends everything defensive. There is no middle gear at all, which makes it the most decisive configuration the authors published and the one with the fewest moving parts to explain.

The balanced configurations, built on a twelve-asset universe, hold several assets and step into cash gradually, a quarter or a fifth at a time. Same machinery, much gentler behavior.

Bonds among the risk assets

One design choice reads oddly until you see what it does. Aggregate bonds sit in the offensive universe alongside the three equity regions.

That has two effects, both intended. The strategy can be nominally risk-on while actually holding bonds, which is what happens when equities are all weaker than bonds but none of the four is negative. And a bond selloff becomes one of the four things that can send the entire portfolio defensive, which matters a great deal in a year like 2022.

The weakness the later models fixed

VAA's defensive universe is three bonds: corporate bonds, intermediate Treasuries and short Treasuries. When the breadth rule fires, the strategy holds whichever of the three has the highest momentum.

Note what is missing. There is no test of whether that asset is rising at all, and no cash equivalent in the list. So VAA can be forced into a defensive position that is itself losing money, with short Treasuries as the effective floor. In most decades that floor is harmless. In a year when rates rise sharply and every bond falls, it is a real cost.

This is the main structural weakness of the 2017 design, and the authors addressed it directly in later work. Bold Asset Allocation introduced a cash hurdle that every defensive pick must clear, and widened the defensive universe to include real assets.

Where it sits in their body of work

VAA is the second link in the chain. Protective Asset Allocation introduced breadth in 2016 and used it to set a proportional cash fraction. VAA sharpened it into something far more decisive in 2017. Defensive Asset Allocation then argued in 2018 that the breadth count should be measured on a separate set of assets rather than on the ones being bought, which halved the time spent hiding. Bold and Hybrid Asset Allocation carried it forward from there.

Read in order, the line is a decade-long argument with itself about one question: what should tell you to get out?

Core Strategy Logic

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

Everything is scored with the same weighted momentum measure, which blends 1, 3, 6 and 12-month returns with the most recent month weighted most heavily. It is deliberately fast, since the whole design depends on reacting before trouble is obvious.

Step 1 - Count the failing offensive assets

Score all four offensive assets. Count how many have momentum at or below zero. A reading of exactly zero counts as bad.

Step 2 - Choose the mode

• None failing: 100% into the single highest-scoring offensive asset.
• One or more failing: 100% into the single highest-scoring defensive asset.

That is the entire decision. There is no partial allocation in this configuration, and no test applied to the asset actually bought in either mode.

The portfolio is rebalanced to fresh targets every month, signal change or not.

The universes

Offensive, four candidates, best one held:

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

Defensive, three candidates, best one held:

Asset	Role
LQD	Corporate bonds
IEF	Intermediate Treasuries
SHY	Short Treasuries

With one holding and four candidates, a near-tie in the ranking decides the whole portfolio. That sensitivity is inherent to the configuration rather than a flaw in any particular implementation, and it is worth knowing about before comparing published results from different sources, which often disagree for exactly this reason.

Performance Highlights

Over the full published history, alongside the model that refined it and the later model built on its universe:

January 1980 through August 2026, net of trading friction:

	CAGR	Max Drawdown	UPI
Vigilant Asset Allocation - Aggressive	+12.4%	-21.6%	1.26
Defensive Asset Allocation	+11.3%	-20.2%	1.40
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 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.

Against the index, VAA-A does what the paper promised. It matches the S&P 500's long-run return while holding its worst decline to about 40% of the index's, and it does that while sitting out of the market more than half the time. Breadth momentum works.

The row that puts it in perspective is Bold Asset Allocation - Aggressive, which holds nearly the same four assets under the same one-at-a-time rule. It earns about three points more per year at a very similar worst decline. The difference is almost entirely the defensive side: BAA ranks seven defensive assets against a cash floor, where VAA is stuck holding the best of three bonds whether or not any of them is rising. Five years of refinement went almost entirely into what the strategy does when it is hiding, and that is where the return came from.

Defensive Asset Allocation, the 2018 successor, trades a little return for a slightly smaller decline and a better UPI, which is roughly what its separate canary universe was designed to deliver.

Triad is included as the closest comparison among strategies built here.

The same five, measured from January 2000:

January 2000 through August 2026, net of trading friction:

	CAGR	Max Drawdown	UPI
Vigilant Asset Allocation - Aggressive	+10.2%	-21.6%	1.09
Defensive Asset Allocation	+8.3%	-20.2%	1.04
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

VAA-A holds up better in the recent window than its 2018 successor does, beating DAA on both return and UPI over this stretch. Its worst decline is identical in both tables, so the deepest drawdown of the entire 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

• Breadth-based protection. The exit decision counts failing assets across the universe rather than testing the holdings.
• Maximally decisive. One failing asset out of four moves 100% of the portfolio. No partial risk-off exists in this configuration.
• One holding at a time. Whether offensive or defensive, the portfolio is a single fund.
• Out of the market often. Historically more than half of all months are spent on the defensive side.
• Bonds count as risk-on. Aggregate bonds can be the offensive holding, and a bond selloff can trigger the exit.
• No cash floor. The defensive holding is whichever bond ranks highest, even if all three are falling.
• Fast momentum measure. Weighted toward the most recent month, which reacts early and can whipsaw.
• Sensitive to near-ties. With four candidates and one winner, a marginal ranking decides everything.
• Monthly rebalancing. Fresh targets every month, with full turnover whenever the pick changes.
• No leverage. VAA-A never holds a leveraged fund.
• Best suited to tax-deferred accounts. Frequent full-portfolio switches 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

VAA-A is designed for investors who want:

• The original breadth momentum design at its most decisive setting.
• An exit triggered by deterioration across a universe rather than by the holdings themselves failing.
• Simple execution, since there is only ever one position.
• Index-like returns with a fraction of the index's worst decline.
• A rules-based process with no market-timing judgment calls.

It is a poor fit for investors who want gradual risk reduction, who would be uncomfortable holding a single fund, or who are troubled by a defensive position that can lose money in a rising-rate year. Investors drawn to this design should compare it with Bold Asset Allocation - Aggressive, which holds nearly the same universe with a far better defensive side, and with Defensive Asset Allocation, which moved the breadth count onto a separate set of assets. Those wanting a comparable approach from strategies built here should look at Triad.

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Vigilant 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