HAA Balanced
A tactical asset allocation strategy that looks at the momentum of inflation-linked bonds (TIP) as a "canary" to decide each month whether to invest in the 4 best risk assets or retreat to cash or Treasury bonds.
What HAA Balanced is
HAA stands for Hybrid Asset Allocation. It is a strategy published in February 2023 by Wouter Keller and Jan Willem Keuning in the paper Dual and Canary Momentum with Rising Yields/Inflation: Hybrid Asset Allocation (HAA) (SSRN 4346906). "Balanced" is its balanced version: 8 risk assets, of which the best 4 are bought.
It is "hybrid" because it combines two momentum ideas:
- Relative (dual) momentum: among the 8 risk assets, it picks the 4 that have performed best recently.
- Absolute momentum with a canary: if the canary (inflation-linked bonds, TIP) has negative momentum, it leaves risk entirely.
Quick facts
- Author
- Wouter J. Keller and Jan Willem Keuning
- Year
- 2023
- Origin
- Paper
- Access
- Public and free
- Type
- Tactical
- Assets
- 10
- Frequency
- Monthly
- Difficulty
- Medium
Who it is for
For long-term investors who accept that the portfolio will sometimes be 100% in cash or bonds, who can trade once a month and who want to limit large drawdowns. It is not for anyone who wants to beat the S&P 500 every year, nor for anyone who cannot bear the tax cost of rotating.
Current signal
HAA Balanced
Calculated with the closes of September 30, 2026.
No portfolio changes from last month.
How this month's decision was made
Momentum = the average of the total return over 1, 3, 6 and 12 months, calculated with the closes of September 30, 2026.
| # | Asset | 1 m | 3 m | 6 m | 12 m | Momentum |
|---|---|---|---|---|---|---|
| 1 | DBC Commodities | +3.3% | +21.2% | +11.6% | +48.3% | +21.10% |
| 2 | SPY S&P 500 | -0.3% | +2.4% | +17.9% | +15.7% | +8.91% |
| 3 | VEA Developed ex-US | -2.9% | -0.7% | +11.0% | +21.0% | +7.11% |
| 4 | VWO Emerging markets | -1.8% | -0.4% | +10.1% | +12.0% | +4.94% |
| 5 | IWM US small caps | -5.2% | -7.3% | +12.6% | +16.0% | +4.04% |
| 6 | VNQ Real estate (REITs) | -6.3% | -6.2% | +2.8% | +1.8% | -1.98% |
| 7 | IEF US Treasuries 7-10 years | -3.4% | -4.6% | -4.5% | -3.7% | -4.05% |
| 8 | TLT US Treasuries 20+ years | -5.4% | -9.0% | -8.2% | -9.0% | -7.87% |
Safe asset: BIL (1-3 month T-bills) +1.66% against IEF (7-10 year bonds) -4.05%: BIL is chosen.
Rules, step by step
The rules, step by step
At the close of the last business day of each month:
- Calculate the momentum of each asset as the simple average of its total return over 1, 3, 6 and 12 months.
- Look at the canary, TIP. If its momentum is positive or zero, offensive mode. If it is negative, defensive mode.
- Defensive mode: 100% of the portfolio goes to the better (by momentum) of BIL (1-3 month Treasury bills) and IEF (7-10 year Treasury bonds).
- Offensive mode: buy, in equal parts (25% each), the 4 assets with the most momentum in this universe: SPY (S&P 500), IWM (US small caps), VWO (emerging markets), VEA (developed markets ex-US), VNQ (real estate), DBC (commodities), IEF (7-10 year bonds) and TLT (20+ year bonds).
- Extra protection: if any of those 4 has negative or zero momentum, it is replaced by the safe asset (BIL or IEF, whichever has the higher momentum).
- Hold the portfolio until the close of the following month and repeat.
Every figure on this page applies exactly these rules to real price data (total return, dividends reinvested) with a cost of 0.1% per trade, just like the paper.
Why TIP is the canary
Classic momentum strategies suffer when interest rates and inflation rise together, as in 2022: stocks fall and bonds fall too, with nowhere to hide. Keller and Keuning propose watching inflation-linked bonds (TIPS) as an early signal of that environment. While TIP is rising, the market tolerates risk; when its momentum turns negative, the strategy exits to safety.
The practical advantage is that a single asset decides the regime. That makes it very easy to follow and audit, but it is also a weakness: if TIP gives a false alarm, the portfolio loses a month of upside.
An example with numbers
With the closes of September 30, 2026, TIP has a momentum of -2.65% (negative), so the strategy is in defensive mode. It doesn't matter how well other assets are doing: when the canary fails, 100% goes to BIL.You can see the full calculation, asset by asset, in the "How this month's decision was made" table above.
Backtest and out-of-sample period
With real ETFs from Sep 2008 to Sep 2026, HAA Balanced returns 9.7% a year with a maximum monthly drawdown of -9.3% and volatility of 9.1%. The S&P 500 over the same period: 10.8% a year with a drawdown of -51%.
An honest reading: HAA does not try to beat the S&P 500 every year, but to sharply cut the drawdowns in exchange for giving up part of the strongest rallies. Its average share of time in defensive mode (safe asset) is 29%.
And since it was published?
A backtest is always suspect because the rules were designed knowing the past. The fairest test is the period after publication: since February 2023 the strategy returns 10.0% a year (maximum drawdown -8.0%), against 20.3% for the S&P 500. It is a short period and proves nothing on its own, but it is the check you should keep watching over time, and the one we update every month.
10.0% a year · max drawdown -8.0% · S&P 500 over the same period: 20.3%
An "out-of-sample" result: the period after the rule was published, which could not have been used to tune the rules.
Growth of $100 (logarithmic scale) since , with 0.1% costs per trade. Data: US-listed ETFs, total return (dividends reinvested), before taxes.
Drawdowns from peak
| Strategy | CAGR | Volatility | Max drawdown | Sharpe |
|---|
Year by year
| Year | HAA Balanced | S&P 500 | 60/40 |
|---|---|---|---|
| 2026 (to Sep 2026) | +15.8% | +12.7% | +5.8% |
| 2025 | +13.0% | +17.7% | +13.8% |
| 2024 | +0.3% | +24.9% | +14.7% |
| 2023 | +8.2% | +26.2% | +17.2% |
| 2022 | +3.1% | -18.2% | -17.0% |
| 2021 | +23.4% | +28.7% | +15.9% |
| 2020 | +20.7% | +18.3% | +15.0% |
| 2019 | +6.3% | +31.2% | +21.9% |
| 2018 | +5.5% | -4.6% | -2.4% |
| 2017 | +13.4% | +21.7% | +14.0% |
| 2016 | +11.8% | +12.0% | +7.6% |
| 2015 | -3.9% | +1.2% | +1.3% |
| 2014 | +0.3% | +13.5% | +11.7% |
| 2013 | +8.8% | +32.3% | +16.9% |
| 2012 | +11.0% | +16.0% | +11.1% |
| 2011 | +2.1% | +1.9% | +7.4% |
| 2010 | +19.4% | +15.1% | +12.8% |
| 2009 | +12.9% | +26.4% | +13.1% |
| 2008 | +7.4% | -36.8% | -14.9% |
The first year may be partial. Returns are net of trading costs.
Replication against the paper
To check that our engine applies the rules correctly, we replicate the period shown in the paper (Dec 2012 – Dec 2022, 0.1% costs):
| CAGR | Worst monthly drawdown | |
|---|---|---|
| Paper (Fig. 6) | 8.5% | -6.4% |
| Our replication | 8.6% | -6.4% |
Small differences come from the data provider, the exact dates of the closes and rounding. More in the methodology.
Taxes on rotating
The results above are before taxes. This strategy re-assesses the portfolio every month: historically it turns over an average of 347% of the portfolio a year and spends 29% of months in defensive mode. Every change is a sale.
In most countries each sale of an ETF in a taxable account realises a gain or loss that may be taxed, so rotating monthly is best done inside a tax-advantaged account (such as an IRA or 401(k) in the US, or an ISA or SIPP in the UK) where one is available. Rules vary by country and by account: check yours, or ask a tax adviser. See our methodology for how the results are calculated.
Criticisms and limits
The paper's 1970-2022 figures use pre-ETF indices and the rules were designed knowing that past; with real ETFs data only goes back to 2008. It rotates almost every month, with the tax cost that implies, and a single canary (TIP) decides the regime - a false alarm costs a month of upside.
Strengths
- Simple, transparent rules: one canary, one momentum measure, 8 assets.
- Protection against prolonged declines: it leaves risk when inflation-linked bonds weaken, not only when equities fall.
- Real diversification: stocks, bonds, real estate and commodities.
- It can be followed in 10 minutes a month.
Limitations and risks
- Turnover and taxes: the strategy changes portfolio frequently (average annual turnover of 347%). In a taxable account every sale may realise a taxable gain, so many people run it inside a tax-advantaged account.
- False alarms and whipsaw: the canary can exit and re-enter at a loss in sideways markets.
- Short history with ETFs: with real ETFs data only goes back to 2007-2008. The paper extends the study to 1970 using, for the pre-ETF years, index data adjusted for fees; its 1970-2022 figures (15.9% a year, maximum drawdown 9.7%) carry more uncertainty than the real-ETF ones.
- Execution: trading at the close of the last business day of the month (as the backtest does) is difficult for a retail investor; trading the next day changes the results slightly.
- Your fund may not be the same as the US ETF. If you use equivalent funds listed elsewhere there will be tracking differences.
How to run it
- Check the signal at the start of the month (or subscribe to the alert).
- Map each ETF in the signal to the fund you actually hold.
- Use the rebalancing calculator to see how many shares to buy or sell.
- Keep a record of your trades: you will need them for your tax return.
Similar strategies
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5 assets at 20% each, held only while trading above their 10-month average
Tactical · MonthlyBAA-G12 (Bold Asset Allocation)
Top 6 of 12 with 4 canaries and a 7-bond defensive pool
Tactical · MonthlyVAA-G12 (Vigilant Asset Allocation)
Top 2 of 12 assets; cash enters gradually with the number of assets in negative momentum
Frequently asked questions
What does HAA stand for?
It stands for Hybrid Asset Allocation. The "Balanced" version buys the best 4 of 8 risk assets.
What is the difference between HAA Balanced and HAA Simple?
HAA Simple is a far more concentrated version that only holds US equities (SPY) when both TIP and SPY have positive momentum. Third-party backtests show larger drawdowns than the Balanced version; this site focuses on Balanced.
Why is TIP used as the canary?
Because inflation-linked bonds react to rising rates and inflation, the environment where traditional momentum strategies suffer most. It is the paper's main contribution.
Can HAA be replicated with ETFs listed outside the US?
Yes, using equivalent funds to place the trades while keeping the signal calculation on the US ETFs. There are differences in tracking, currency and taxes on dividends.
How often do I need to trade?
Once a month, at the close of the last business day or, in practice, on the first business day of the following month. You don't need to watch the market every day.
Is this investment advice?
No. It is educational information about a published strategy. Neither backtests nor past performance guarantee future results, and you can lose money.
Sources and review date
- Keller and Keuning, "Dual and Canary Momentum with Rising Yields/Inflation: Hybrid Asset Allocation (HAA)", SSRN 4346906 · accessed October 10, 2026
Page last reviewed on October 10, 2026; figures and signal are recalculated at every monthly close (latest: September 30, 2026). How we work: editorial policy and methodology.
Educational and informational content. It is not investment advice or a personal recommendation. The results shown are historical simulations (backtests) using US-listed ETFs; past performance does not guarantee future results and you may lose some or all of the capital invested. Real returns will depend on your costs, taxes, currency and execution timing.