Does adding crash protection based on global market breadth enhance the reliability of dual momentum? In their April 2016 paper entitled “Protective Asset Allocation (PAA): A Simple Momentum-Based Alternative for Term Deposits”, Wouter Keller and Jan Willem Keuning examine a multi-class, dual-momentum portfolio allocation strategy with crash protection based on multi-market breadth. Their principal goal is consistently positive returns, at least 95% (99%) of 1-year rolling returns not below 0% (-5%). Their investment universe is 13 exchange-traded funds (ETF), 12 risky (SPY, QQQ, IWM, VGK, EWJ, EEM, IYR, GSG, GLD, HYG, LQD, TLT) and one safe (IEF). Each month, they:

- Measure the momentum of each risky ETF as ratio of current price to simple moving average (SMA) of monthly prices over the past 3, 6, 9 or 12 months, minus one.
- Specify the safe ETF allocation as number of risky assets with non-positive momentum divided by 12 (low crash protection), 9 (medium crash protection) or 6 (high crash protection). For example, if 3 of 12 risky assets have zero or negative momentum, the IEF allocation for high crash protection is 3/6 = 50%.
- Allocate the balance of the portfolio to the equally weighted 1, 2, 3, 4, 5 or 6 risky assets with the highest positive momentum (reducing the number of risky assets held if not enough have positive momentum).

The interactions of four SMA measurement intervals, three crash protection levels and six risky asset groupings yield 72 combinations. They first identify the optimal combination in-sample during 1971 through 1992 and then test this combination out-of-sample since 1992. Prior to ETF inception dates, they simulate ETF prices based on underlying indexes. They assume constant one-way trading frictions 0.1%, acknowledging that this level may be too low for early years and too high for recent years. They focus on a monthly rebalanced 60% allocation to SPY and 40% allocation to IEF (60/40) as a benchmark. Using monthly simulated/actual ETF total return series during December 1969 through December 2015, *they find that:* Keep Reading