Bold Asset Allocation — Balanced (BAA-B)
Developed by Wouter Keller · Canary Universe · High Risk
Bold Asset Allocation was published by Wouter Keller in his 2022 SSRN paper (#4166845), representing the most sophisticated evolution of his canary universe architecture. BAA builds on the innovations introduced in DAA but adds a critical new dimension: a dual-speed signal system that uses fast momentum for crash detection and slow momentum for asset selection. This separation of speed profiles allows the strategy to be simultaneously quick to detect danger and deliberate in choosing what to hold — resolving a tension that plagued earlier single-speed approaches.
Keller designed BAA specifically to address the compromise inherent in using one momentum formula for both crash detection and asset ranking. Fast signals catch crashes early but generate noisy asset rankings. Slow signals provide stable holdings selection but respond too late to sudden drawdowns. By assigning each function to the momentum speed best suited for it, BAA achieves the best characteristics of both. The fast 13612W composite monitors four canary assets for danger signals. The slow thirteen-month SMA ratio ranks the investment universe for positioning. These two speeds operate independently within a unified framework.
The balanced variant — BAA-B — selects six assets from a broad twelve-position offensive universe spanning global equities, real estate, commodities, gold, and bonds. This wide diversification during risk-on periods contrasts with the concentrated approaches of VAA and DAA, producing smoother returns at the cost of lower peak performance. The defensive side draws from an enhanced seven-asset safe-haven universe that includes not just traditional bonds but also commodities and inflation-protected securities — a significant improvement over earlier strategies that relied on a narrow set of bond instruments for defense.
Four canary assets — US stocks (SPY), emerging markets (VWO), international developed stocks (VEA), and aggregate bonds (BND) — serve as the early warning system. If any single canary shows negative weighted momentum, the entire portfolio transitions to defensive mode. The broad four-canary gate monitors the health of major global asset classes simultaneously, providing comprehensive coverage across diverse types of market stress. The strategy spends approximately sixty percent of months in defensive mode due to this sensitive trigger — a persistent defensive bias that requires significant patience from investors but has historically delivered strong risk-adjusted returns through effective crash avoidance.
How It Works
Fast Canary Detection
Four canary assets are scored monthly using the fast 13612W weighted momentum composite — the same formula used in VAA and DAA that applies declining weights to one, three, six, and twelve-month returns with heavy emphasis on recency. If any single canary produces a negative score, the entire portfolio transitions to defensive mode.
The four-canary gate provides broader coverage than DAA's two-canary system. US equities capture domestic momentum conditions. Emerging markets reflect global risk appetite and capital flows. International developed stocks add sensitivity to European and Asian market stress. Aggregate bonds signal rate and credit conditions. Together, they detect diverse types of market stress — trade wars, rate shocks, credit crises, and pandemic selloffs — through whichever asset class is first affected.
Slow Asset Selection for Offense
When all canaries are positive, twelve assets are ranked by their thirteen-month SMA ratio — the ratio of current price to the thirteen-month simple moving average. This slow metric measures how far each asset has risen above its own trend line, producing stable rankings that change gradually over time.
The thirteen-month SMA ratio was specifically chosen as a deliberate contrast to the fast canary signal. While the canary detection needs speed to catch crashes early, asset selection benefits from stability to reduce unnecessary turnover. The SMA ratio changes slowly and produces consistent rankings from month to month, allowing the portfolio to hold winning positions for extended periods during trending markets. The top six assets by SMA ratio receive equal weight, spreading risk across the strongest trends in the global market.
Enhanced Defensive Universe
When any canary triggers, the portfolio shifts to a seven-asset defensive universe that extends beyond traditional bond instruments: inflation-protected bonds (TIP), commodities (DBC), short-term Treasuries (BIL), intermediate Treasuries (IEF), long-term Treasuries (TLT), investment-grade bonds (LQD), and aggregate bonds (BND). The top three by SMA ratio receive equal weight, and each must outperform cash (BIL) to earn allocation — those that do not are replaced by cash directly.
This expanded defensive menu is a significant advancement over earlier strategies. By including TIPS and commodities alongside traditional bonds, the strategy can protect effectively during inflationary downturns where nominal bonds also suffer — a scenario that was historically considered unlikely but occurred dramatically in 2022 when stocks, bonds, and real estate all declined simultaneously while commodities and TIPS held up relatively well. The BIL floor ensures the defensive portfolio never holds an asset in a worse downtrend than cash itself.
Explore Bold Asset Allocation — Balanced (BAA-B)
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