Resilient Asset Allocation (Keller’s RAA)

Resilient Asset Allocation (RAA) is Wouter Keller's follow-up to Lethargic Asset Allocation, published in December 2020. It holds five assets at 20% each: the Nasdaq-100, US small cap value stocks, gold, and intermediate and long Treasuries. It moves everything to Treasuries only when unemployment is rising and emerging market stocks or US bonds lose momentum.

The idea#

Keller kept the growth-trend idea from LAA: step aside only when the economy and the markets are both bearish. He made two changes. The risk portfolio is more aggressive. And the slow 10-month average of the S&P 500 is replaced by the fast "canary" check from his Defensive Asset Allocation: if emerging market stocks or US aggregate bonds have negative momentum, the markets are treated as bearish.

The canaries only matter while unemployment is rising, so the portfolio still trades rarely, on average about one month a year.

How it works#

At the close of the last trading day of each month:

1. Compare the US unemployment rate (FRED UNRATE) with its level 12 months earlier, using figures as first published.
2. If it is not higher, hold 20% each of QQQ, IWN, GLD, IEF, and TLT.
3. If it is higher, check the 13612W momentum of emerging market stocks (VWO) and US aggregate bonds (BND); this weights the 1-, 3-, 6-, and 12-month returns 12:4:2:1.
4. If either momentum is zero or below, hold 50% IEF and 50% TLT; otherwise keep the five-asset mix.

What the backtest shows#

The ETF-era test starts in April 2008, once the bond canary has a year of history. Since then RAA returned about 8% a year, against 12% for the S&P 500 and 8.4% for a 60/40 stock and bond mix. Its worst drawdown was about 26%, half the S&P 500's, and its risk-adjusted return was above both.

It gained 27% from April 2008 through that year, while the S&P 500 lost 32%, because the defensive portfolio is all Treasuries. That same Treasury weight is its weakness: its worst drawdown ran from January 2021 to October 2022, when it lost 19% in the 2022 bond crash, and it did not recover until August 2025.

Since publication at the start of 2021 it has returned about 2% a year, far behind the S&P 500.

With simulated fund history the test starts in 2000 and returns about 8% a year, against 8.6% for the S&P 500, with a much smaller drawdown. It gained 11% in 2002 and 24% in 2008.

When it struggles#

• Rising rates. Two of its five risk assets are Treasuries, and its defensive portfolio is all Treasuries. In 2021 and 2022 bonds lost money while unemployment was falling, so the strategy never switched.
• Strong stock markets. With 40% in stocks it lags badly in bull markets, such as 2013 and 2021.
• Slow signal. Unemployment must be higher than a year earlier before the canaries count, so it reacts late to fast crashes.

Using it on Tactfolio#

The live strategy above runs the paper's rules with FRED unemployment data. Copy it to swap the canaries (Allocate Smartly uses EEM and AGG, which track the same indexes), change the risk portfolio, or compare it with Lethargic Asset Allocation.

Year by year

* Partial year.

The rules as implemented

This is the exact tree Tactfolio runs, rebalanced monthly with signals and trades at the close. Open it to inspect or copy it.

Sources and caveats

• Wouter J. Keller, Lazy Momentum with Growth-Trend Timing: Resilient Asset Allocation (RAA) (2020)

• Risk-off needs the unemployment rate (FRED UNRATE) above its level 12 months earlier and 13612W momentum at or below zero for either canary, emerging market stocks (VWO) or US aggregate bonds (BND), as in the paper; Allocate Smartly uses EEM and AGG, which hold the same indexes.
• The ETF-era test starts once BND has a year of history for its momentum, in 2008.
• Each economic figure counts only from the day it was first published, and as first reported: at a month end the latest figure is the previous month's, the one-month lag the source describes.
• Signals and trades use the close of the last trading day of each month, as in the source.

Common questions#

What is Resilient Asset Allocation?#

It is Wouter Keller's growth-trend portfolio: 20% each in QQQ, IWN, GLD, IEF, and TLT, switching to IEF and TLT only when unemployment is higher than a year earlier and emerging market stocks or US bonds show negative momentum.

How is RAA different from Lethargic Asset Allocation?#

RAA holds a more aggressive five-asset mix and confirms rising unemployment with fast canary momentum instead of the S&P 500's 10-month average. LAA times only a quarter of its portfolio.

What are the canaries in RAA?#

Emerging market stocks (VWO) and US aggregate bonds (BND), with 13612W momentum as in Keller's Defensive Asset Allocation. If either is negative while unemployment is rising, the strategy turns defensive.

Does Resilient Asset Allocation still work?#

Since publication in 2021 it has earned about 2% a year, hurt by the 2022 bond crash. The live record on Tactfolio shows how it is doing now.

Related strategies

• Growth-Trend Timing (Philosophical Economics’ GTT)
• Growth-Trend Timing with unemployment (GTT-UE)
• Growth-Trend Timing with job growth
• Growth-Trend Timing with housing starts and income