Verdad Countercyclical
Month-end: read the Baa minus 10-year spread and the 10-year minus 1-year slope 2 business days before the close. Backtest max drawdown: -25.9%.
Strategy & methodology
Month-end: read the Baa minus 10-year spread and the 10-year minus 1-year slope 2 business days before the close; Spread above its 10-year median → Growth: 50% SPY, 40% IWN, 10% gold; Spread at or below its median, slope below its median…
- Strategy type:
- Tactical asset allocation
- Rebalance frequency:
- Daily
- Original publication:
- 2021-04-12; results after that are out-of-sample for the original research. All results are backtest simulations.
- Data through:
- Backtest data through 2026-11-12.
Simulated history
Stand-in funds and until when (5)
- LQD: PIGIX before Jul 26, 2002
- IEF: VFITX before Jul 26, 2002
- IWN: DFSVX before Jul 28, 2000
- LQD: VWESX before Jul 26, 2002
- 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
Month-end: read the Baa minus 10-year spread and the 10-year minus 1-year slope 2 business days before the close. Backtest max drawdown: -25.9%. 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 daily 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 0b369f52, published 2026-11-09
Is Verdad Countercyclical still working in 2026?
Verdad Countercyclical returned 1.65% over the trailing 12 months and 71.71% over 36 months through 2026-11-12, compared with a full-backtest annualized return of 13.21%. Its full-backtest maximum drawdown was -25.88%. The full sample contains 11807 daily NAV observations from 1980-01-11. These are model results, not investor account returns or a promise. As of 2026-11-12 it is -2.77% below its high-water mark of 2026-06-29, 4 months ago, and its longest run below a previous high was 2.5 years. Recent returns do not establish that the strategy will keep working.
| Period | Return | CAGR | Max drawdown | Observations | Dates |
|---|---|---|---|---|---|
| Trailing 12 months | 1.65% | Not annualized | -4.38% | 252 | 2025-11-12 to 2026-11-12 |
| Trailing 36 months | 71.71% | Not annualized | -6.34% | 754 | 2023-11-10 to 2026-11-12 |
| Full backtest | 33261.22% | 13.21% | -25.88% | 11807 | 1980-01-11 to 2026-11-12 |
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 2026-06-29, 4 months before 2026-11-12, and it is -2.77% below that level now. The longest run below a previous high in the full backtest was 2.5 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.
Verdad Countercyclical at a glance
Verdad Countercyclical is a tactical asset allocation (TAA) strategy by Verdad (Graham Infinger, 2021) across US Equity, US Small-Cap Value, Gold, Corporate Bonds, rebalanced daily. Backtested 1980-01-11 to 2026-11-12 (46.8 years): 13.2% CAGR, 0.83 Sharpe, -25.9% max drawdown, 10.9% volatility.
- Type
- Tactical (TAA)
- Author
- Verdad (Graham Infinger, 2021)
- Rebalancing
- Daily
- Risk
- Moderate
- Period
- 1980-01-11 to 2026-11-12
- CAGR
- 13.2%
- Sharpe
- 0.83
- Max Drawdown
- -25.9%
- Volatility
- 10.9%
Verdad Countercyclical — Tactical Asset Allocation Strategy
Verdad Countercyclical is the business-cycle allocation Graham Infinger designed and tested in two Verdad research notes of April 2021, Designing a Countercyclical Strategy and Testing a Countercyclical Approach to Asset Allocation. It leans against the credit cycle: when corporate credit spreads are wide, which is when investors are pricing in a recession, it buys stocks and small-cap value, and when spreads are tight it moves toward gold or bonds, depending on the yield curve. A 200-day trend rule on stocks and gold sits on top. The notes leave some details open, and BestFolio settles them this way: the state is set at the month-end close from readings taken two business days earlier, and a sleeve in a downtrend is held in 7-10 year Treasuries (IEF).
How it decides. At each month-end two indicators are compared with their own median over the trailing 10 years: the credit spread (the Moody's Baa corporate bond yield minus the 10-year Treasury yield) and the slope of the yield curve (the 10-year minus the 1-year Treasury yield). A spread above its median sets the Growth state: 50% S&P 500 (SPY), 40% US small-cap value (IWN), 10% gold. A spread at or below its median with a flat curve (slope below its median) sets Inflation: 50% SPY, 10% IWN, 40% gold. A spread at or below its median with a steep curve sets Slowdown: 50% investment-grade corporate bonds (LQD), 40% IEF, 10% IWN. The state holds for the whole month and changes about once a year. The trend rule runs every day: SPY or gold moves to IEF after 5 consecutive closes below its 200-day moving average and comes back after 5 consecutive closes above, so the book can change mid-month, about 4 times a year in all. The signal reads Risk-On while stocks are more than half of the book, Risk-Off when they are 10% or less and Mixed in between, and each signal names its Growth, Inflation or Slowdown state.
Verdad Countercyclical: frequently asked questions
- What is Verdad Countercyclical?
- Verdad's countercyclical allocation (Graham Infinger, 2021) with a trend filter. Each month-end the Moody's Baa minus 10-year Treasury credit spread and the 10-year minus 1-year Treasury slope are compared to their trailing 10-year medians. A wide spread means Growth (50% SPY, 40% small-cap value, 10% gold); a tight spread with a flat curve means Inflation (50% SPY, 10% small-cap value, 40% gold); a tight spread with a steep curve means Slowdown (50% investment-grade corporates, 40% 7-10 year Treasuries, 10% small-cap value). SPY and gold move to 7-10 year Treasuries after 5 closes below their 200-day average and come back after 5 closes above, on any day. It has trailed the S&P 500 since May 2021, after Verdad published it, and HAA, also in the catalog, did better over the full history from 1980.
- Who created the Verdad Countercyclical strategy?
- Verdad Countercyclical was developed by Verdad (Graham Infinger, 2021). It is based on Infinger, G. (Verdad, 2021). Designing a Countercyclical Strategy (12 April) and Testing a Countercyclical Approach to Asset Allocation (19 April).
- What is the historical return and maximum drawdown of Verdad Countercyclical?
- Backtested from 1980-01-11 to 2026-11-12, Verdad Countercyclical returned 13.2% CAGR with a -25.9% maximum drawdown and a Sharpe ratio of 0.83. Past performance does not guarantee future results.
- How often is Verdad Countercyclical rebalanced?
- Verdad Countercyclical is rebalanced daily. BestFolio publishes the updated allocation signal each period.
- Is Verdad Countercyclical a tactical asset allocation strategy?
- Yes. Verdad Countercyclical 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 (1980-01-11 to 2026-11-12)
| Metric | Verdad Countercyclical |
|---|---|
| CAGR | 13.2% |
| Max Drawdown | -25.9% |
| Sharpe | 0.83 |
| Sortino | 1.34 |
| Volatility | 10.9% |
| Calmar | 0.51 |
| Total Return | 33712.0% |
| Backtest Period | 46.8 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
- daily
- Risk Level
- moderate
- Variants
- 1
- Author
- Verdad (Graham Infinger, 2021)
- Source
- Infinger, G. (Verdad, 2021). Designing a Countercyclical Strategy (12 April) and Testing a Countercyclical Approach to Asset Allocation (19 April)
Asset Classes
- US Equity
- US Small-Cap Value
- Gold
- Corporate Bonds
- Treasuries
Categories
Further reading
New to this approach? Read what tactical asset allocation is and how it works.
Holding Verdad Countercyclical alongside another strategy? Use the free portfolio overlap calculator to see how much of the two portfolios actually differs.
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Related research
- Verdad Countercyclical: buying stocks when credit is scared, and what the trend rule really doesVerdad's allocation leans against the credit cycle and adds a 200-day trend rule. Our backtest says it beats the S&P 500 on risk-adjusted return since 1980, that the trend rule does most of that work, and that HAA did the same job better.
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