Protective Asset Allocation (PAA): A Simple Momentum-Based Alternative for Term Deposits

Wouter J. Keller

Flex Capital BV; VU University Amsterdam

Jan Willem Keuning


April 5, 2016

Since the financial crisis of 2008 and the recent (end of 2015) pull back, investors are searching for less risky investments. Therefore, there is a growing demand for low risk/absolute return portfolios. In this paper we describe a simple dual-momentum model (called Protective Asset Allocation or PAA) with a vigorous “crash protection” which might fit this bill. It is a tactical variation on the traditional 60/40 stock/bond portfolio where the optimal stock/bond mix is determined by multi-market breadth using dual momentum. We backtested the model with several global multi-asset ETF-proxies. Starting from Dec 1970 allows us to investigate the behavior of PAA in periods with rate hikes as well. The in-sample (Dec 1970-Dec 1992) and out-of-sample returns of the most protective variant of our PAA strategy satisfy our absolute return requirement without compromising high returns. This makes PAA an appealing alternative for a 1-year term deposit.

Number of Pages in PDF File: 24

Keywords: Absolute return, protective momentum, dual absolute and relative momentum, 60/40, SMA, FAA, TAA

JEL Classification: C00, C10, C22, G00, G11, G10, G14

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Date posted: April 8, 2016 ; Last revised: April 13, 2016

Suggested Citation

Keller, Wouter J. and Keuning, Jan Willem, Protective Asset Allocation (PAA): A Simple Momentum-Based Alternative for Term Deposits (April 5, 2016). Available at SSRN: https://ssrn.com/abstract=2759734 or http://dx.doi.org/10.2139/ssrn.2759734

Contact Information

Wouter J. Keller (Contact Author)
Flex Capital BV ( email )
Waterkers 14
Krimpen Aan Den Ijssel
Holland, 2925 TJ
VU University Amsterdam ( email )
De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Jan Willem Keuning
TrendXplorer ( email )
HOME PAGE: http://www.trendxplorer.info
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