PAA (Protective Asset Allocation) at a glance
PAA (Protective Asset Allocation) is a tactical asset allocation (TAA) strategy by Wouter J. Keller & Jan Willem Keuning across US Equity, Small Cap, Tech, Europe, rebalanced monthly. Backtested 1986-02-28 to 2026-07-03 (40.3 years): 9.4% CAGR, 1.29 Sharpe, -14.2% max drawdown, 8.0% volatility.
- Type
- Tactical (TAA)
- Author
- Wouter J. Keller & Jan Willem Keuning
- Rebalancing
- Monthly
- Risk
- Moderate
- Period
- 1986-02-28 to 2026-07-03
- CAGR
- 9.4%
- Sharpe
- 1.29
- Max Drawdown
- -14.2%
- Volatility
- 8.0%
PAA (Protective Asset Allocation) — Tactical Asset Allocation Strategy
Protective Asset Allocation (PAA) by Keller & Keuning uses a breadth-based approach to determine how much of the portfolio should be in crash protection (bonds) vs. risky assets. It counts how many of the 12 universe assets have positive SMA(13) momentum, then computes a bond fraction that scales smoothly from 0% to 100% based on a configurable protection level. The risky portion is allocated equally across the top 6 assets ranked by momentum. This gradual scaling provides a smoother risk-on/risk-off transition than the binary VAA approach.
PAA (Protective Asset Allocation): frequently asked questions
- What is Protective Asset Allocation?
- Breadth-based crash protection across 12 risky assets. The fraction with positive SMA momentum determines the bond buffer -- more negative assets means more IEF protection. Remaining capital goes to top momentum picks. Monthly rebalancing.
- Who created the PAA (Protective Asset Allocation) strategy?
- PAA (Protective Asset Allocation) was developed by Wouter J. Keller & Jan Willem Keuning. It is based on Keller, W.J. & Keuning, J.W. (2016). Protective Asset Allocation (PAA).
- What is the historical return and maximum drawdown of PAA (Protective Asset Allocation)?
- Backtested from 1986-02-28 to 2026-07-03, PAA (Protective Asset Allocation) returned 9.4% CAGR with a -14.2% maximum drawdown and a Sharpe ratio of 1.29. Past performance does not guarantee future results.
- How often is PAA (Protective Asset Allocation) rebalanced?
- PAA (Protective Asset Allocation) is rebalanced monthly. BestFolio publishes the updated allocation signal each period.
- Is PAA (Protective Asset Allocation) a tactical asset allocation strategy?
- Yes. PAA (Protective Asset Allocation) 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 (1986-02-28 to 2026-07-03)
| Metric | PAA (Protective Asset Allocation) |
|---|---|
| Compound Annual Growth Rate (CAGR) | 9.4% |
| Maximum Drawdown | -14.2% |
| Sharpe Ratio | 1.29 |
| Sortino Ratio | 2.13 |
| Annualized Volatility | 8.0% |
| Calmar Ratio | 0.66 |
| Total Return | 3614.6% |
| Backtest Period | 40.3 years |
Strategy Details
- Type
- Tactical (TAA)
- Rebalancing
- monthly
- Risk Level
- moderate
- Variants
- 2
- Author
- Wouter J. Keller & Jan Willem Keuning
- Source
- Keller, W.J. & Keuning, J.W. (2016). Protective Asset Allocation (PAA)
Asset Classes
- US Equity
- Small Cap
- Tech
- Europe
- Japan
- Emerging Markets
- REITs
- Commodities
- Gold
- High Yield Bonds
- Corporate Bonds
- Long-Term Treasuries
Categories
Further reading
New to this approach? Read what tactical asset allocation is and how it works.
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