What is the VAA Strategy — Rules and Method

A strategy named for its caution

VAA stands for Vigilant Asset Allocation, published by Keller and Keuning in 2017.

Its defining trait is sensitivity. If a single one of the four offensive assets has a momentum score at or below zero, the whole allocation moves to defensive assets that month. Of the three strategies here, VAA turns defensive first.

The 13612W momentum score

Rather than a single 12-month return, VAA combines the 1, 3, 6 and 12-month returns, weighting shorter windows more heavily so the score reacts to recent moves.

Precisely: multiply the 1-month return by 12, the 3-month by 4, the 6-month by 2 and the 12-month by 1, then divide by four. That definition comes from a footnote in the paper; it is not a blend of our own. We always show the source alongside the number.

Because it is a weighted average rather than a return, we never print it with a percent sign. That is why it appears as a plain number on screen.

The universes

The offensive universe is US large caps (SPY), developed markets (VEA), emerging markets (VWO) and US aggregate bonds (BND). A bond fund on the offensive side looks odd at first; here BND acts less as a risk asset than as a reading on market conditions.

The defensive universe is investment grade corporates (LQD), intermediate treasuries (IEF) and short-term treasuries (SHY).

We publish the VAA-G4 configuration, which uses those four offensive assets. The paper also describes variants with a wider universe.

The decision

Each month-end we score the four offensive assets. If all four are above zero, 100% goes to the highest-scoring one.

If any of them is at or below zero, the offensive side is emptied and 100% goes to the highest-scoring defensive asset. It is not a partial reduction — it is the whole allocation.

That sensitivity is the main reason the three strategies disagree in some months: GEM may still be holding equities while VAA has already moved into short-term treasuries.

Reading it on this site

The signal page opens with the selected asset and the regime for the month, along with a line naming which offensive asset turned negative if the strategy moved to defence.

The bar table separates offensive and defensive assets with a horizontal rule. Looking at which bars fall below zero shows the decision as a picture instead of a claim you have to accept.

Switching the currency to Korean won changes the numbers for the same month, which is worth seeing at least once. The strategy signal itself is always computed in dollars, as the paper defines it.

Worth knowing

This page explains a rule. It is not advice to buy or sell anything; the decision and its consequences are yours.

The paper reports results over past periods. We do not reproduce those figures — we have not verified them.

Signals change often, so turnover is high. Trading costs and taxes are not included in what you see here.