VAA-G4 (Vigilant Asset Allocation)
Four risk assets, only one held. If any of the four has negative momentum, all the money goes to the best Treasury bond. It is the most aggressive and the most nervous version in the VAA family.
What VAA-G4 is
VAA-G4 is the small version of the Vigilant Asset Allocation that Wouter Keller and Jan Willem Keuning published in July 2017 (SSRN 3002624). "G4" means a global universe of just four risk assets: US equities, developed equities outside the US, emerging markets and aggregate bonds. The larger version, with twelve assets, has its own page: VAA-G12.
The rule boils down to one condition. If all four assets have positive momentum, buy the best one. If any of them does not, everything goes to cash. There are no intermediate steps: it is the extreme case of the breadth momentum idea, with sensitivity at its maximum.
Quick facts
- Author
- Wouter J. Keller and Jan Willem Keuning
- Year
- 2017
- Origin
- Paper
- Access
- Public and free
- Type
- Tactical
- Assets
- 7
- Frequency
- Monthly
- Difficulty
- Low
Who it is for
Anyone looking for the shortest rule in the VAA family, with few assets and one simple decision a month, who accepts being 100% in a single ETF.
Who it is not for
Anyone who cannot stand a single-position portfolio, frequent change of asset or the tax cost of high turnover.
Who it is for and who it is not for
It is the easiest rule to follow in the VAA family: four assets, one comparison and one decision. It works for studying how a concentrated, fast strategy behaves. The price of that simplicity is a single-position portfolio, with everything that implies, and trades almost every month.
Current signal
VAA-G4 (Vigilant Asset Allocation)
Calculated with the closes of September 30, 2026.
No portfolio changes from last month.
Rules, step by step
At the close of the last business day of each month:
- 13612W momentum of the 4 risk assets and the 3 cash assets: 12 times the 1-month return, plus 4 times the 3-month return, plus 2 times the 6-month return, plus the 12-month return. The paper averages it; for the sign and the ranking it makes no difference.
- With the parameters T = 1 and B = 1: if any of the 4 risk assets has 13612W less than or equal to zero, 100% goes to the best of SHY, IEF and LQD by their 13612W. There is no absolute filter here either: the best cash asset is chosen even if its momentum is negative.
- If all 4 risk assets have positive momentum, 100% goes to the one with the highest 13612W.
- Hold until the close of the following month.
The engine uses these US ETFs: SPY (S&P 500), VEA (developed ex-US), VWO (emerging markets) and BND (US aggregate bonds) as risk assets; and SHY (1-3 year Treasuries), IEF (7-10 year Treasuries) and LQD (investment-grade credit) as cash. BND is a risk asset in this version even though it is a bond.
Decisions made by this site
- Cash with SHY, not BIL. The paper's conclusions (p. 35) cite BIL as cash, but the method uses SHY. We follow the method.
- VEA, VWO and BND instead of EFA, EEM and AGG. The paper's text names the iShares ETFs; note 11 clarifies that proxies for the Vanguard ones were used. Note 16 gives the result with the iShares ones: see the criticisms section.
- Tie-breaks. The paper does not say what to do if two assets tie on 13612W. The engine applies no rule of its own; with real prices an exact tie is very unlikely.
- 0.1% costs per trade, like the paper (p. 11).
Backtest and out-of-sample period
With real ETFs from Sep 2008 to Sep 2026, VAA-G4 returns 6.9% a year with volatility of 10.3% and a maximum monthly drawdown of -22.1%. It is in cash 54% of the time on average and turns over at 771% a year.
Since publication (Jul 2017), it returns 4.4% a year with a maximum drawdown of -22.1% and a Sharpe of 0.24.
What the authors publish
Figures from the paper's tables, with 0.1% costs and calculated with ETF proxies built by the authors since 1970:
| Series | Period | Annual return | Volatility | Worst drawdown | Sharpe | Source |
|---|---|---|---|---|---|---|
| VAA-G4, full sample | 1970-12 to 2016-12 | 18.9% | 12.7% | -13.0% | 0.94 | Table 8, p. 21 |
| VAA-G4, out of sample | 1993-12 to 2016-12 | 16.0% | 11.7% | -10.4% | 0.92 | Table 7 |
| VAA-G4, optimised stretch | 1970-12 to 1993-12 | 22.0% | 13.7% | -13.0% | 0.98 | Table 6 |
| VAA-G4 with iShares ETFs (EFA, EEM, AGG) | 1970-12 to 2016-12 | 18.8% | 13.1% | -16.4% | n/a | Note 16 |
The paper's Sharpe is calculated against the authors' cash portfolio, not against the risk-free rate, and is not comparable with ours. "Out of sample" has the paper's meaning here (parameters optimised over 1970-1993, validated over 1993-2016), different from "since publication", which is what our engine measures. With different periods and data, comparing their figures with ours only serves as an order of magnitude.
4.4% a year · max drawdown -22.1% · S&P 500 over the same period: 15.0%
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 | VAA-G4 (Vigilant Asset Allocation) | S&P 500 | 60/40 |
|---|---|---|---|
| 2026 (to Sep 2026) | +5.1% | +12.7% | +5.8% |
| 2025 | +8.8% | +17.7% | +13.8% |
| 2024 | -1.2% | +24.9% | +14.7% |
| 2023 | +1.8% | +26.2% | +17.2% |
| 2022 | -13.0% | -18.2% | -17.0% |
| 2021 | +0.3% | +28.7% | +15.9% |
| 2020 | +14.7% | +18.3% | +15.0% |
| 2019 | +8.9% | +31.2% | +21.9% |
| 2018 | +10.3% | -4.6% | -2.4% |
| 2017 | +11.6% | +21.7% | +14.0% |
| 2016 | +5.8% | +12.0% | +7.6% |
| 2015 | -3.6% | +1.2% | +1.3% |
| 2014 | +6.6% | +13.5% | +11.7% |
| 2013 | +5.8% | +32.3% | +16.9% |
| 2012 | +21.2% | +16.0% | +11.1% |
| 2011 | +2.5% | +1.9% | +7.4% |
| 2010 | +7.8% | +15.1% | +12.8% |
| 2009 | +31.5% | +26.4% | +13.1% |
| 2008 | +6.8% | -36.8% | -14.9% |
The first year may be partial. Returns are net of trading costs.
Taxes on rotating
The results above are before taxes. This strategy re-assesses the portfolio every month: historically it turns over an average of 771% of the portfolio a year and spends 54% 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 parameters T=1 and B=1 were optimised over 1970-1993 and the authors warn of data-mining risk. A single position at 100% and close to 57% of the time in cash; monthly turnover is around 55% according to the paper. The result depends on the ETF family - with the iShares equivalents the paper's maximum drawdown goes from 13.0% to 16.4%.
- Parameter optimisation. T and B were chosen with 1970-1993 data; the authors warn of data-mining risk (pp. 7-8). With T=1 and B=1 a single negative signal is enough to change the whole portfolio.
- Dependence on the ETF family. With the iShares equivalents, the maximum drawdown published in the paper goes from 13.0% to 16.4% (note 16). A difference like that between two nearly identical ETFs suggests part of the result is a matter of detail.
- A single position. When there is risk, 100% is in one ETF, and when there is not, in one bond. Any error in that asset is paid in full.
- A lot of time in cash and a lot of turnover. About 57% of the time in cash and monthly turnover estimated around 55% (p. 21). Each change is a sale.
- One negative asset is enough. With only four, a false alarm in one of them takes the whole portfolio out of the market that month.
- History made of proxies. The data since 1970 are the authors' proxies, not tradable prices.
How to run it
- Wait for the close of the last business day of the month and check the "Current signal".
- If the asset changes, map the new ETF to the fund you actually hold.
- Work out the orders with the rebalancing calculator.
- Trade on the first business day of the following month. The backtest assumes execution at the close.
Similar strategies
Frequently asked questions
How does VAA-G4 differ from VAA-G12?
In the number of assets and the reaction to signals. G12 chooses the best two of twelve and sends 50% or 100% to cash depending on how many assets are negative. G4 chooses one of four and, at the first negative asset, sends 100% to cash.
Why does a bond (BND) count as a risk asset?
Because in this version the paper includes it in the universe of four assets from which one is chosen, and it is required to have positive momentum like the others. Cash is another group: SHY, IEF and LQD.
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, "Breadth Momentum and Vigilant Asset Allocation (VAA): Winning More by Losing Less", SSRN 3002624 (v0.99, July 2017) · accessed October 10, 2026
Page last reviewed on October 11, 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.