Robust Asset Allocation — Balanced (RAA-GRAY-B)
Developed by Wes Gray · Dual Momentum · Med Risk
Robust Asset Allocation was developed by Wes Gray at Alpha Architect, a quantitative asset management firm known for its rigorous, evidence-based approach to investment research. The balanced variant (RAA-GRAY-B) applies dual confirmation — requiring both trend and momentum signals to agree — before making allocation changes to a three-asset portfolio spanning US equities, international equities, and intermediate bonds. This conservative signal design prioritizes reducing false alarms over maximizing responsiveness, producing a strategy with very low turnover and strong behavioral adherence characteristics.
Gray's research philosophy emphasizes robustness over optimization: strategies should be simple enough to survive regime changes, transparent enough for investors to understand and maintain discipline, and backed by evidence that spans multiple decades and market environments. RAA embodies these principles by using straightforward trend and momentum signals applied to a minimal asset universe, avoiding the complex scoring functions and optimization routines that characterize more mathematically sophisticated approaches.
The balanced variant holds three permanent positions — US equities (SPY), international equities (EFA), and intermediate bonds (IEF) — in fixed proportions. Each equity position is independently subjected to a dual confirmation test: both a moving average trend filter and an absolute return check must agree that the position should remain invested. When either signal turns negative for a specific position, that allocation shifts to cash while the other positions remain unchanged. The bond allocation is permanent and never adjusted, providing a stable income and volatility anchor.
The dual confirmation requirement substantially reduces false signals relative to single-indicator systems. A temporary price dip below the moving average — which would trigger a single-indicator system — is ignored if the absolute return over the lookback period remains positive. Conversely, a modest absolute return decline is tolerated if the price remains above its moving average. Only when both indicators simultaneously confirm weakness does the strategy reduce exposure, producing extremely rare defensive triggers that fire almost exclusively during genuine bear markets.
How It Works
Fixed-Tier Allocation
The portfolio maintains fixed proportional targets across US equities (SPY), international equities (EFA), and intermediate bonds (IEF). These targets are structural and do not change based on momentum rankings or market conditions. The bond allocation remains permanently invested regardless of rate trends, providing a stable anchor that reduces overall portfolio volatility and generates income during all market environments.
The fixed-tier approach means the portfolio's risk profile is determined primarily by the allocation targets rather than by dynamic signal-based positioning. During risk-on periods, the portfolio looks very similar to a static balanced allocation. The tactical element operates only as a protective overlay that selectively removes equity positions during confirmed downtrends.
Dual Confirmation Filter
Each equity position is independently evaluated against two criteria each month. First, the price must be above its ten-month simple moving average, confirming a positive trend. Second, the trailing twelve-month absolute return must be positive, confirming that the asset has gained value over the lookback period. Both conditions must be met simultaneously for the position to remain invested.
When either condition fails, that specific equity position shifts to cash while the other equity position and the bond allocation remain unchanged. The per-position independence means the portfolio can hold US equities but not international equities (or vice versa), providing granular risk management that responds to regional rather than global market conditions. Full defensive positioning — both equity allocations in cash — occurs only when both US and international markets simultaneously fail the dual confirmation test.
Low Turnover and Behavioral Alignment
The dual confirmation requirement produces extremely low turnover. In backtesting, the strategy makes defensive adjustments in only a handful of months per decade — substantially less frequently than single-indicator strategies that trigger on every moving average crossover or momentum sign change. This rarity makes the strategy exceptionally practical for taxable accounts and reduces the behavioral burden on investors who must execute the signal.
The infrequent trading also means the strategy closely tracks a passive balanced portfolio during the vast majority of months. Investors experience the familiar returns of a standard stock-bond portfolio ninety-five percent of the time, with the tactical element only becoming visible during the rare periods when confirmed market weakness triggers a defensive shift. This behavioral alignment — where the strategy looks and feels like passive investing during normal conditions — substantially reduces the temptation to abandon the system during inevitable tracking-error periods.
Explore Robust Asset Allocation — Balanced (RAA-GRAY-B)
See the full backtest across 18 years of market data, or run your own what-if scenarios by adjusting all research parameters.