Vigilant Asset Allocation (VAA): 10% CAGR — Does It Beat SPY?
Welcome back to Avalon QuantBrief, where we dissect high-performance quantitative strategies to help you navigate volatile markets. Today, we are exploring Vigilant Asset Allocation (VAA), a famous momentum framework published by Keller and van Putten in 2017, and how we can adapt it to tame high-beta leveraged ETFs. By implementing advanced risk controls, we can capture the explosive upside of assets like TQQQ and SOXL while keeping drawdowns strictly under control. Backtest Summary (2017–present) 📈 CAGR: 10.2% 📉 Max Drawdown: -18.6% ⚡ Sharpe Ratio: 0.78 💰 Total Return: 163.8% 🎯 Universe: TQQQ, UPRO, SOXL, TNA, TLT, GLD, SHY Understanding the Mechanics of Vigilant Asset Allocation The original VAA strategy is an elegant framework that splits its investment universe into offensive assets like equities and defensive assets like bonds or gold. By calculating a weighted momentum score across multiple lookback periods, VAA determines whether the market is in a risk-on or risk...