About Strategy
A dynamic tactical strategy that allocates between stocks, bonds, and gold based on trailing 6-month momentum. Overweights top-performing assets and underweights laggards each month.
Performance Metrics (2016-2026)
| CAGR (10-Year) | 11.5% |
| Max Drawdown | -19.8% |
| Sharpe Ratio | 0.71 |
| Volatility (StdDev) | 13.5% |
| Best Year | +32.1% |
| Worst Year | -14.2% |
| Strategy Type | Tactical Asset Allocation |
| Risk Profile | High |
Asset Allocation
Adaptive Allocation dynamically weights three core assets based on momentum: US Equities (VOO) up to 40%, Long-Term Treasury Bonds (TLT) up to 30%, and Gold (GLD) up to 30%. When momentum is negative for all assets, the portfolio can shift partially into Cash/T-Bills (BIL). Weights are recalculated monthly.
Execution Rules
- Each month, calculate the trailing 6-month return for US equities, long-term bonds, and gold.
- Rank assets by performance and allocate higher weights to top performers, lower weights to laggards.
- If all three assets show negative momentum, reduce equity exposure and increase cash allocation (BIL).
- Rebalance monthly to maintain dynamic allocation based on the latest momentum readings.
ETF Proxies Used in Our Backtest
- Vanguard S&P 500 ETF (VOO) — primary equity exposure (up to 40%)
- iShares 20+ Year Treasury Bond ETF (TLT) — long-term bond allocation
- SPDR Gold Shares (GLD) — gold momentum exposure
- SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) — cash/safety allocation
Allocation Calculator
Recommended Allocation
Enter performance inputs above to calculate weights.
History & Background of Adaptive Asset Allocation
Adaptive Asset Allocation belongs to a family of momentum-based dynamic strategies that gained popularity in the 2010s. Unlike traditional static portfolios (60/40, Permanent Portfolio) that maintain fixed weights regardless of market conditions, adaptive strategies continuously adjust their allocation based on trailing performance metrics.
The intellectual foundation draws from two streams of research: momentum investing (Jegadeesh & Titman, 1993; Asness, Moskowitz, & Pedersen, 2013) and risk-based allocation (Maillard, Roncalli, & Teiletche, 2010). The core insight is that assets with strong recent performance tend to continue outperforming, and dynamically weighting toward these winners can improve risk-adjusted returns.
This specific implementation uses a 6-month lookback window — shorter than GEM's 12-month period — which makes it more responsive to changing market conditions but also more prone to whipsaw. The three-asset universe (stocks, bonds, gold) covers the primary sources of return in modern portfolios: equity risk premium, duration premium, and inflation/uncertainty premium.
When to Use Adaptive Allocation: Pros & Cons
Strengths
- High CAGR (11.5%) with strong Sharpe ratio (0.71)
- Dynamic allocation responds quickly to changing market conditions
- Gold exposure provides inflation protection lacking in GEM
- Multiple assets reduce binary concentration risk vs. GEM/DM
- Shorter lookback (6-month) captures trends faster than 12-month strategies
Limitations
- Highest risk profile in the catalog — max drawdown -19.8%
- Monthly rebalancing increases trading costs and complexity
- Shorter lookback increases whipsaw risk in choppy markets
- Tax-inefficient for taxable accounts
- Requires disciplined monthly execution — not suitable for passive investors
Ideal for: Active investors seeking the highest returns in the catalog with tactical risk management, those comfortable with monthly rebalancing and higher volatility, and anyone who wants momentum-based exposure across stocks, bonds, and gold.