Lazy Momentum with Growth-Trend timing: Resilient Asset Allocation (RAA)

Abstract

Resilient Asset Allocation (RAA) is a more aggressive version of our Lethargic Asset Allocation (LAA) strategy. It combines a more robust “All Weather” portfolio with even slower growth-trend (GT) filter and a faster market crash-protection. GT timing goes risk-off only when both the US unemployment (UE) and the US capital markets are bearish. To arrive at RAA, we adapt LAA in three steps. First, the (risky, near-static) portfolio is changed to an even more robust and more diversified “all-weather” portfolio, now with five (instead of four) equal weighted assets and with only bonds as risk-off assets (“cash”). Second, the “canary” technology from our Defensive Asset Allocation (DAA) paper is used for determining the market trend with a faster filter. Third, we change the unemployment trend filter to a slower one, where we simply compare the recent unemployment rate with that of one year ago. As a result, RAA is more aggressive and more robust than LAA, while at the same time nearly as “lazy” with respect to trading and turnover (on average one trading month per year).

Keywords: Keywords: Growth-TrendTiming, Unemployment, Golden Butterfly Portfolio, All-Weather Portfolio, Canary Assets, Trend, Momentum, Drawdown, Crash Protection, Backtesting, LAA, DAA, VAA, PAA, TAA

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