Flexible Asset Allocation (FAA)
Score 7 assets by 4-month return (R), volatility (V), and average correlation (C). Backtest max drawdown: -24.4%.
Strategy & methodology
Score 7 assets by 4-month return (R), volatility (V), and average correlation (C); Composite rank: L = 1.0×rank(R) + 0.5×rank(V) + 0.5×rank(C) (lower is better); Top 3 at 33.3% each; replace negatives with SHY.
- Strategy type:
- Tactical asset allocation
- Rebalance frequency:
- Monthly
- Original publication:
- 2012; results after that are out-of-sample for the original research. All results are backtest simulations.
- Data through:
- Backtest data through 2026-10-01.
Simulated history
Stand-in funds and until when (9)
- VEA: EFA before Jul 26, 2007
- BND: AGG before Apr 10, 2007
- GSG: DBC before Jul 21, 2006
- VWO: EEM before Mar 10, 2005
- VNQ: VGSIX before Sep 29, 2004
- SHY: VFISX before Jul 26, 2002
- VTI: VTSMX before May 31, 2001
- VNQ: FRESX before Sep 29, 2004
- VTI: VFINX before May 31, 2001
Before these dates the backtest uses a stand-in, not the fund itself, so the results over those stretches show how the rules would have behaved, not what the fund returned.
Research data and disclosures
Score 7 assets by 4-month return (R), volatility (V), and average correlation (C). Backtest max drawdown: -24.4%. This is a tactical asset allocation strategy. BestFolio supplies the public rule or approach and backtest context; current signals, allocations, and paid interactive data remain restricted to Pro access. Users review the published signal and place any resulting trades in their own brokerage. Displayed returns remain hypothetical and do not represent a customer's brokerage record. The facts above show how current the data is.
- BestFolio supplies
- The monthly signal email and this strategy page; current signals and email alerts require Pro access.
- Customer action
- Review the published signal and place any required trades in your own brokerage. BestFolio does not execute orders.
- Costs and exclusions
- Backtests are net of a modeled one-way transaction cost (10 bps, scaled up to 3x under stress); taxes, fund-expense drift, or market impact are not modeled. No tax, no slippage beyond the stated cost. Methodology limitations
Published result: Engine drift-until-flip-v1, data version bbfb139d, published 2026-10-01
Is Flexible Asset Allocation (FAA) still working in 2026?
Flexible Asset Allocation (FAA) returned 4.25% over the trailing 12 months and 19.11% over 36 months through 2026-10-01, compared with a full-backtest annualized return of 9.98%. Its full-backtest maximum drawdown was -24.38%. The full sample contains 10433 daily NAV observations from 1985-06-28. These are model results, not investor account returns or a promise. As of 2026-10-01 it is -4.93% below its high-water mark of 2026-08-14, 2 months ago, and its longest run below a previous high was 2.8 years. Recent returns do not establish that the strategy will keep working.
| Period | Return | CAGR | Max drawdown | Observations | Dates |
|---|---|---|---|---|---|
| Trailing 12 months | 4.25% | Not annualized | -7.58% | 252 | 2025-10-01 to 2026-10-01 |
| Trailing 36 months | 19.11% | Not annualized | -10.86% | 754 | 2023-09-29 to 2026-10-01 |
| Full backtest | 4960.80% | 9.98% | -24.38% | 10433 | 1985-06-28 to 2026-10-01 |
Last verified
Common questions about these results
Are these live investor returns?
No. These are the latest model NAV results from the published backtest. A recent date alone does not make a result an independently observed live record. Investor costs, taxes and execution can differ.
Why can a strategy lag for a year?
A tactical model can hold defensive assets during a rally or change positions during reversals. A short window can differ substantially from its full history. Compare cumulative returns over matching dates and inspect drawdowns as well.
How long has it spent below a previous high?
Its last high-water mark was 2026-08-14, 2 months before 2026-10-01, and it is -4.93% below that level now. The longest run below a previous high in the full backtest was 2.8 years. Recovering from a drawdown can take years, and a strong trailing return does not mean a past high has been regained.
Where can I check the signals behind these results?
The Signals tab on this page lists each dated model decision for the selected variant; for Pro strategies they are visible to Pro members. The methodology page explains the backtest assumptions.
Flexible Asset Allocation (FAA) at a glance
Flexible Asset Allocation (FAA) is a tactical asset allocation (TAA) strategy by Wouter Keller & Hugo van Putten across US Equity, International Equity, Emerging Markets, US Bonds, rebalanced monthly. Backtested 1985-06-28 to 2026-10-01 (41.3 years): 10.0% CAGR, 1.05 Sharpe, -24.4% max drawdown, 8.9% volatility.
- Type
- Tactical (TAA)
- Author
- Wouter Keller & Hugo van Putten
- Rebalancing
- Monthly
- Risk
- Moderate
- Period
- 1985-06-28 to 2026-10-01
- CAGR
- 10.0%
- Sharpe
- 1.05
- Max Drawdown
- -24.4%
- Volatility
- 8.9%
Flexible Asset Allocation (FAA) — Tactical Asset Allocation Strategy
Flexible Asset Allocation (FAA) is the generalized momentum model that Wouter Keller and Hugo van Putten posted on SSRN in December 2012. At each month-end it ranks 7 asset-class ETFs (VTI, VEA, VWO, BND, VNQ, GSG and SHY) on 3 trailing 4-month measures: total return (higher is better), volatility (lower is better) and average correlation with the other 6 (lower is better). The combined score L = 1.0 x rank(return) + 0.5 x rank(volatility) + 0.5 x rank(correlation) picks the top 3 at a third each, and any pick with a negative 4-month return is replaced by SHY.
Replication: rebuilt on the paper's own 7 mutual funds, the published rules returned 14.6% a year over 1998 to 2012 against the 14.2% the paper reports, with turnover of 2.8x against 2.9x. This page differs from the paper in 3 ways: it trades ETFs extended backwards with proxies (the paper's FDIVX is an active fund and its QRAAX a total-return commodity fund, while the commodity history here is a spot index before 2006), it ranks volatility and correlation on the 4 monthly returns in the window where the paper uses daily returns, and it charges 10 bps a trade. Over the paper's window it returns 13.0% a year after costs.
Flexible Asset Allocation (FAA): frequently asked questions
- What is Flexible Asset Allocation (FAA)?
- Multi-factor ranking strategy using momentum, volatility, and pairwise correlation over a 4-month window. Holds top N assets equal-weighted from a 7-ETF universe; negative-momentum picks rotate to cash. Monthly rebalancing.
- Who created the Flexible Asset Allocation (FAA) strategy?
- Flexible Asset Allocation (FAA) was developed by Wouter Keller & Hugo van Putten. It is based on Keller, W.J. & van Putten, H. (2012). Generalized Momentum and Flexible Asset Allocation (FAA): An Heuristic Approach. SSRN 2193735.
- What is the historical return and maximum drawdown of Flexible Asset Allocation (FAA)?
- Backtested from 1985-06-28 to 2026-10-01, Flexible Asset Allocation (FAA) returned 10.0% CAGR with a -24.4% maximum drawdown and a Sharpe ratio of 1.05. Past performance does not guarantee future results.
- How often is Flexible Asset Allocation (FAA) rebalanced?
- Flexible Asset Allocation (FAA) is rebalanced monthly. BestFolio publishes the updated allocation signal each period.
- Is Flexible Asset Allocation (FAA) a tactical asset allocation strategy?
- Yes. Flexible Asset Allocation (FAA) is a tactical asset allocation (TAA) strategy: it adjusts its holdings based on market signals each period rather than holding a fixed allocation.
Backtest Performance (1985-06-28 to 2026-10-01)
| Metric | Flexible Asset Allocation (FAA) |
|---|---|
| CAGR | 10.0% |
| Max Drawdown | -24.4% |
| Sharpe | 1.05 |
| Sortino | 1.75 |
| Volatility | 8.9% |
| Calmar | 0.41 |
| Total Return | 4960.8% |
| Backtest Period | 41.3 years |
Every rebalance fills at the signal-day close, net of modeled transaction costs. Followers trade at the next open; the delayed-close line in the Rebalance Frequency Sensitivity card shows the effect of trading one session later. Execution assumption
Strategy Details
- Type
- Tactical (TAA)
- Rebalancing
- monthly
- Risk Level
- moderate
- Variants
- 1
- Author
- Wouter Keller & Hugo van Putten
- Source
- Keller, W.J. & van Putten, H. (2012). Generalized Momentum and Flexible Asset Allocation (FAA): An Heuristic Approach. SSRN 2193735
Asset Classes
- US Equity
- International Equity
- Emerging Markets
- US Bonds
- REITs
- Commodities
- Cash
Categories
Further reading
New to this approach? Read what tactical asset allocation is and how it works.
Holding Flexible Asset Allocation (FAA) alongside another strategy? Use the free portfolio overlap calculator to see how much of the two portfolios actually differs.
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