PAA (Protective Asset Allocation)
Compute MOM = (price / SMA(13 month-end prices)) - 1 for all 12 universe assets. Count n = number of assets with MOM > 0. Backtest max drawdown: -14.1%.
Strategy & methodology
Compute MOM = (price / SMA(13 month-end prices)) - 1 for all 12 universe assets; Count n = number of assets with MOM > 0; Compute n1 = protection_level × N / 4 (default protection_level=2, N=12 → n1=6); Bond fraction BF = (N - n) / (N -…
- Strategy type:
- Tactical asset allocation
- Rebalance frequency:
- Monthly
- Original publication:
- 2016-04-05; 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 (13)
- HYG: VWEHX before Apr 11, 2007
- VGK: EFA x1.05 before Mar 10, 2005
- VNQ: VGSIX before Sep 29, 2004
- EEM: VEIEX before Apr 14, 2003
- TLT: VUSTX before Jul 26, 2002
- SHY: VFISX before Jul 26, 2002
- LQD: PIGIX before Jul 26, 2002
- IEF: VFITX before Jul 26, 2002
- LQD: VWESX before Jul 26, 2002
- VNQ: FRESX before Sep 29, 2004
- EWJ: PRJPX before Mar 18, 1996
- EEM: FEMKX before Apr 14, 2003
- SPY: VFINX before Jan 29, 1993
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
Compute MOM = (price / SMA(13 month-end prices)) - 1 for all 12 universe assets. Count n = number of assets with MOM > 0. Backtest max drawdown: -14.1%. 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 6a7f1e5c, published 2026-10-01
Is PAA (Protective Asset Allocation) still working in 2026?
PAA (Protective Asset Allocation) returned 22.41% over the trailing 12 months and 48.66% over 36 months through 2026-10-01, compared with a full-backtest annualized return of 9.45%. Its full-backtest maximum drawdown was -14.09%. The full sample contains 10341 daily NAV observations from 1986-02-28. These are model results, not investor account returns or a promise. As of 2026-10-01 it is -1.23% below its high-water mark of 2026-09-22, 9 days ago, and its longest run below a previous high was 2.9 years. Recent returns do not establish that the strategy will keep working.
| Period | Return | CAGR | Max drawdown | Observations | Dates |
|---|---|---|---|---|---|
| Trailing 12 months | 22.41% | Not annualized | -6.93% | 252 | 2025-10-01 to 2026-10-01 |
| Trailing 36 months | 48.66% | Not annualized | -8.94% | 754 | 2023-09-29 to 2026-10-01 |
| Full backtest | 3799.82% | 9.45% | -14.09% | 10341 | 1986-02-28 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 2026-09-22, 9 days before 2026-10-01, and it is -1.23% below that level now. The longest run below a previous high in the full backtest was 2.9 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.
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 2026-10-01 (40.6 years): 9.4% CAGR, 1.27 Sharpe, -14.1% max drawdown, 8.0% volatility.
- Type
- Tactical (TAA)
- Author
- Wouter J. Keller & Jan Willem Keuning
- Rebalancing
- Monthly
- Risk
- Moderate
- Period
- 1986-02-28 to 2026-10-01
- CAGR
- 9.4%
- Sharpe
- 1.27
- Max Drawdown
- -14.1%
- 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 2026-10-01, PAA (Protective Asset Allocation) returned 9.4% CAGR with a -14.1% maximum drawdown and a Sharpe ratio of 1.27. 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 2026-10-01)
| Metric | PAA (Protective Asset Allocation) |
|---|---|
| CAGR | 9.4% |
| Max Drawdown | -14.1% |
| Sharpe | 1.27 |
| Sortino | 2.41 |
| Volatility | 8.0% |
| Calmar | 0.67 |
| Total Return | 3799.8% |
| Backtest Period | 40.6 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
- 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.
Holding PAA (Protective Asset Allocation) alongside another strategy? Use the free portfolio overlap calculator to see how much of the two portfolios actually differs.
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