Hybrid Asset Allocation — Balanced (HAA-B)
Developed by Keller & Keuning · Canary + Dual Momentum · Med Risk
Hybrid Asset Allocation was published by Wouter Keller and Jan Willem Keuning in their 2023 SSRN paper (#4346906), representing Keller's latest evolution in canary-based tactical allocation. HAA synthesizes the canary universe concept from DAA with per-asset absolute momentum filtering, creating a two-layer protection system that is both faster to detect broad market stress and more granular in its per-position risk management than either mechanism alone.
The strategy uses a single canary asset — Treasury Inflation-Protected Securities (TIP) — as a macro regime detector. TIP was selected because its momentum reflects both the real rate environment and inflation expectations, making it sensitive to the two primary channels through which macroeconomic deterioration typically reaches equity markets. When TIP shows positive multi-period momentum, the economic backdrop is considered favorable for risk assets. When TIP momentum turns negative, it signals that either rising real rates or shifting inflation dynamics are creating headwinds that warrant full defensive positioning.
The balanced variant (HAA-B) applies this canary gate to an eight-asset offensive universe spanning US equities (SPY), US small caps (IWM), international developed (VEA), emerging markets (VWO), real estate (VNQ), commodities (DBC), gold (GLD), and long-term Treasuries (TLT). When the TIP canary is positive, each of these eight assets is independently evaluated by its own multi-period momentum score. Only assets with positive individual momentum receive allocation — those with negative scores have their weight redirected to the defensive fallback. The top four qualifying assets receive equal weight.
This dual-layer architecture means the portfolio can be fully offensive (TIP positive and all assets individually positive), partially defensive (TIP positive but some individual assets negative), or fully defensive (TIP negative). The graduated nature of the per-asset filtering provides a nuance that binary canary systems lack — the portfolio can reduce its equity exposure position by position as individual assets weaken, without waiting for the macro canary to trigger a full exit.
How It Works
The TIP Canary Gate
Each month, TIP is scored using the 13612U composite — the unweighted average of one, three, six, and twelve-month returns. If TIP's score is negative, the entire portfolio shifts to defensive mode regardless of how individual offensive assets are performing. This macro-level gate provides fast, decisive protection against broad environmental deterioration that would likely affect all risk assets.
TIP's effectiveness as a single canary derives from its unique position at the intersection of real rates and inflation expectations. When real rates are rising rapidly (as in 2022), TIP's price declines as its yield component adjusts. When inflation expectations are falling sharply (as in deflationary scares), TIP's inflation adjustment weakens. Either condition tends to create headwinds for equity markets, making TIP a comprehensive macro sentinel that captures multiple types of stress through a single instrument.
Per-Asset Absolute Momentum Filter
When the TIP canary is positive, each of the eight offensive assets is independently evaluated by its own 13612U composite score. Assets with positive scores qualify for inclusion in the portfolio. Assets with negative scores are excluded, and their allocation share is redirected to the defensive fallback — typically a blend of short-term Treasuries (BIL) and intermediate bonds (IEF) selected by relative momentum.
This per-asset filter provides granular risk management that the canary gate alone cannot achieve. During periods when the macro environment is broadly favorable but individual asset classes are struggling — such as a commodity downturn during an equity rally — the per-asset filter removes the weak positions while maintaining exposure to the strong ones. The portfolio's total risk exposure adjusts position by position, proportional to the number of assets showing strength.
Portfolio Construction
From the qualifying assets (those passing both the canary gate and the individual momentum filter), the top four by 13612U score receive equal allocation. The four-position selection provides meaningful diversification across asset classes while maintaining enough concentration to capture the momentum signal's information. During periods of broad market strength, the top four positions typically span equity and non-equity asset classes, providing natural diversification.
The defensive allocation adapts to conditions. When the TIP canary triggers, the portfolio shifts entirely to the best-performing safe havens by momentum. When individual assets fail their momentum test, only their specific allocations shift to defense while the rest of the portfolio remains invested. This graduated defensive posture — from fully offensive through partially defensive to fully defensive — tracks the severity of market stress more closely than binary switching systems.
Explore Hybrid Asset Allocation — Balanced (HAA-B)
See the full backtest across 18 years of market data, or run your own what-if scenarios by adjusting all research parameters.