Vigilant Asset Allocation (VAA)

Sep 2004 – Sep 2026	Strategy	SPY
Annual return (CAGR)	11.5%	11.2%
Worst drawdown	-18.8%	-55.2%
Sharpe ratio	0.85	0.66
Volatility	14.0%	18.8%
Annual return since publication (Aug 2017)	5.9%	15.0%

May 1995 – Sep 2026	Strategy	SPY
Annual return (CAGR)	12.7%	10.9%
Worst drawdown	-18.8%	-55.2%
Sharpe ratio	0.96	0.64
Volatility	13.3%	19.0%
Annual return since publication (Aug 2017)	5.9%	15.0%

Vigilant Asset Allocation (VAA) is a monthly strategy published in 2017 by Wouter Keller and JW Keuning. Its four-asset version, VAA-G4, holds one asset at a time: the strongest of US stocks, developed-market stocks, emerging-market stocks, and US bonds. At the first sign of trouble in any of them, it moves entirely into bonds.

The idea#

Most trend-following strategies ask, one asset at a time, "is this asset still going up?" VAA asks a broader question: "is anything in my universe going down?" Keller and Keuning call this breadth momentum. Their argument is that markets rarely crash all at once. When one major asset class starts falling, it is often an early warning for the rest.

So VAA-G4 is deliberately twitchy. A single asset with negative momentum is enough to take the whole portfolio defensive. That costs something in calm markets, but it is how the strategy tries to avoid the worst of a crash.

How it works#

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

Measure the momentum of four "offensive" funds: SPY (US stocks), EFA (developed markets outside the US), EEM (emerging markets), and AGG (US aggregate bonds).
Momentum is Keller's 13612W score: a weighted average of the 1-, 3-, 6-, and 12-month returns, with weights of 12, 4, 2, and 1. The most recent month counts the most.
If all four scores are positive, hold 100% of whichever of the four has the highest score.
If even one score is zero or negative, hold 100% of the strongest of three defensive funds: LQD (corporate bonds), IEF (7–10 year Treasuries), or SHY (1–3 year Treasuries).

That is the whole strategy. It always holds exactly one fund.

What the backtest shows#

The table above covers the full history of these ETFs. Over that span VAA-G4 beat the S&P 500 on risk-adjusted return, with a far smaller worst drawdown. Its best stretch was the 2008–2009 crisis: it sat in bonds during most of 2008 and then caught the rebound in 2009.

The less flattering part comes after publication. Since the paper appeared in mid-2017, VAA-G4 has compounded at well under half the S&P 500's rate. Rising rates in 2022 hurt its bond fallback, and its quick switches cost it in the sharp but brief sell-offs of 2018 and 2020. That is why the "since publication" row in the table matters as much as the long-run numbers.

When it struggles#

V-shaped recoveries. It often goes defensive near a bottom and comes back only after the rebound has started.
Years when bonds fall with stocks. In 2022 its defensive funds lost money too.
Concentration. Holding one fund means one wrong pick decides the month.

Using it on Tactfolio#

The live strategy above runs these exact rules on daily data. You can open it to see every condition, copy it into your account, and change it: try a different defensive set, or use VAA as one piece of a larger mix.

Year by year

Year	Strategy	SPY
2026*	2.8%	14.0%
2025	15.1%	17.7%
2024	0.8%	24.9%
2023	7.1%	26.2%
2022	-11.7%	-18.2%
2021	4.8%	28.7%
2020	11.7%	18.3%
2019	8.0%	31.2%
2018	13.8%	-4.6%
2017	16.6%	21.7%
2016	4.8%	12.0%
2015	-3.7%	1.2%
2014	5.3%	13.5%
2013	10.5%	32.3%
2012	16.4%	16.0%
2011	4.7%	1.9%
2010	-2.5%	15.1%
2009	49.1%	26.4%
2008	16.8%	-36.8%
2007	29.1%	5.1%
2006	34.1%	15.8%
2005	17.0%	4.8%
2004*	18.4%	8.9%

Year	Strategy	SPY
2026*	2.8%	14.0%
2025	15.1%	17.7%
2024	0.8%	24.9%
2023	7.1%	26.2%
2022	-11.7%	-18.2%
2021	4.8%	28.7%
2020	11.7%	18.3%
2019	8.0%	31.2%
2018	13.8%	-4.6%
2017	16.6%	21.7%
2016	4.8%	12.0%
2015	-3.7%	1.2%
2014	5.3%	13.5%
2013	10.5%	32.3%
2012	16.4%	16.0%
2011	4.7%	1.9%
2010	-2.5%	15.1%
2009	49.1%	26.4%
2008	16.8%	-36.8%
2007	29.1%	5.1%
2006	34.1%	15.8%
2005	17.0%	4.8%
2004	26.1%	10.7%
2003	49.5%	28.2%
2002	4.3%	-21.6%
2001	7.1%	-11.8%
2000	5.7%	-9.7%
1999	36.5%	20.4%
1998	18.0%	28.7%
1997	16.8%	33.5%
1996	3.7%	22.5%
1995*	5.6%	19.7%

* 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

Uses the ETFs and 13612W momentum (weights 12, 4, 2, 1 on 1-, 3-, 6-, and 12-month returns) from the source, with top 1 and breadth 1.
Signals and trades use the close of the last trading day of each month, as in the source.

Common questions#

What is Vigilant Asset Allocation?#

It is a monthly momentum strategy by Wouter Keller and JW Keuning (2017). It holds the single strongest of four risky funds while all four have positive momentum, and switches to the strongest bond fund as soon as any one of them turns negative.

What ETFs does VAA-G4 use?#

The offensive funds are SPY, EFA, EEM, and AGG. The defensive funds are LQD, IEF, and SHY.

How is 13612W momentum calculated?#

It is a weighted average of the 1-, 3-, 6-, and 12-month returns with weights 12, 4, 2, and 1. This makes it react faster than a plain 12-month return.

Does VAA still work?#

It beat the S&P 500 on risk-adjusted return over the full ETF history, largely thanks to 2008. Since its 2017 publication it has trailed both the S&P 500 and a 60/40 portfolio. The live record on Tactfolio shows how it is doing now.