Lazy Momentum with Growth-Trend timing: Resilient Asset Allocation (RAA)

Abstract

Resilient Asset Allocation (RAA) is a more aggressive version of our Lethargic Asset Allocation (LAA) strategy. It combines a more robust “All Weather” portfolio with even slower growth-trend (GT) filter and a faster market crash-protection. GT timing goes risk-off only when both the US unemployment (UE) and the US capital markets are bearish. To arrive at RAA, we adapt LAA in three steps. First, the (risky, near-static) portfolio is changed to an even more robust and more diversified “all-weather” portfolio, now with five (instead of four) equal weighted assets and with only bonds as risk-off assets (“cash”). Second, the “canary” technology from our Defensive Asset Allocation (DAA) paper is used for determining the market trend with a faster filter. Third, we change the unemployment trend filter to a slower one, where we simply compare the recent unemployment rate with that of one year ago. As a result, RAA is more aggressive and more robust than LAA, while at the same time nearly as “lazy” with respect to trading and turnover (on average one trading month per year).