Vigilant Asset Allocation (VAA-G12)
Developed by Keller & Keuning · Breadth Momentum · Med-High Risk
The G12 variant of Vigilant Asset Allocation expands the original four-asset VAA framework to a broader twelve-asset universe while replacing the binary all-or-nothing switching with a graduated protection mechanism. Published alongside the G4 variant in Keller and Keuning's 2017 SSRN paper (#3002624), VAA-G12 represents a more diversified and less aggressive implementation of the same breadth-based crash detection philosophy — the principle that weakness in any portion of the investment landscape signals potential danger for the whole.
Where VAA-G4 monitors just four assets and switches entirely between a single offensive and single defensive position, G12 monitors twelve assets and scales its defensive allocation proportionally to the count of assets showing negative weighted momentum. This graduated approach trades some of G4's speed and decisiveness for smoother transitions and fewer whipsaw events. When two of twelve assets show negative momentum, the portfolio shifts a modest fraction to defense. When six show negative momentum, half the portfolio is defensive. When all twelve are negative, the portfolio is fully in safe havens.
The twelve-asset universe spans US large caps (SPY), US tech (QQQ), US small caps (IWM), European stocks (VGK), Japanese stocks (EWJ), emerging markets (EEM), real estate (IYR), commodities (GSG), gold (GLD), high-yield bonds (HYG), investment-grade bonds (LQD), and long-term Treasuries (TLT). This breadth across asset classes, geographies, and sectors provides a comprehensive reading of global market health. The same 13612W weighted momentum composite is used for scoring — twelve times the one-month return, plus four times the three-month, plus two times the six-month, plus the twelve-month — preserving the emphasis on recent price action that characterizes the VAA family.
During risk-on periods, the top two assets by momentum score receive equal allocation within the risk-on portion. This two-asset concentration is more diversified than G4's single-asset approach but still provides meaningful momentum exposure. The defensive allocation is distributed among short-term Treasuries (SHY), intermediate bonds (IEF), and investment-grade corporates (LQD) based on their 13612W scores.
How It Works
Breadth-Based Graduated Defense
Each month, all twelve assets are scored using the 13612W weighted momentum composite. The strategy counts how many assets have negative scores — this count directly determines the proportion of the portfolio allocated to defensive assets. Each negative-scoring asset adds a fixed increment to the defensive fraction, creating a linear relationship between the number of struggling assets and the portfolio's defensive positioning.
This graduated approach contrasts sharply with G4's binary mechanism, where a single negative asset triggers full defensive mode. In G12, a single negative asset produces only a modest defensive tilt — perhaps shifting eight to ten percent of the portfolio to bonds. This proportional response reduces the frequency and severity of false alarms while still building meaningful protection as genuine market weakness spreads across the asset landscape.
Momentum Ranking and Selection
From the twelve-asset universe, the top two by 13612W score receive equal allocation within the risk-on portion of the portfolio. The two-position selection concentrates capital in the strongest current trends while providing basic diversification across two different market segments. During equity bull markets, the top two positions are typically equity-related. During defensive regimes or rate-cutting cycles, bonds and gold can enter the top two rankings.
The 13612W scoring's emphasis on recent returns means the top two positions can shift relatively quickly as market leadership rotates. An asset that ranked first last month may drop below second this month if it experienced a sharp recent decline, even if its longer-term returns remain positive. This responsiveness keeps the portfolio aligned with current market momentum but can produce higher turnover than strategies using longer lookback periods.
Defensive Asset Selection
The defensive portion of the portfolio is allocated to the strongest performing member of a three-asset safe-haven universe — short-term Treasuries (SHY), intermediate bonds (IEF), and investment-grade corporate bonds (LQD) — using the same 13612W scoring. This adaptive defensive selection means the portfolio favors whichever safe-haven asset is currently trending most favorably, providing flexibility across different rate environments.
The overall portfolio at any given time is a blend of two offensive positions and one or more defensive positions, with the proportions determined by the breadth score. During healthy markets with eleven or twelve assets in positive territory, the portfolio is almost entirely offensive. During market stress with six or more assets in negative territory, the portfolio is majority defensive. This continuous blending produces a return profile that smoothly transitions between growth capture and capital preservation.
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