A Strong Defense is a Good Offense?

In times of economic uncertainty, traditional safe haven assets (bonds and gold) have often failed. Is there a more robust safe haven approach? In his July 2025 paper entitled “Defense First: A Multi-Asset Tactical Model for Adaptive Downside Protection”, Thomas Carlson introduces the Defense First portfolio, which employs four macro-hedging assets:

• iShares 20+ Year Treasury Bond ETF (TLT – inception July 2002): for deflationary/disinflationary environments and Fed policy easing.
• SPDR Gold Shares (GLD – inception November 2004): for monetary instability and declining real rates.
• Invesco DB Commodity Index Tracking Fund (DBC – inception February 2006): for stagflation and commodity supply shocks.
• Invesco DB US Dollar Index Bullish Fund (UUP – inception March 2007): for times of global stress or funding crises.

He each month ranks these four assets based on equal-weighted momentum scores over the past 1, 3, 6 and 12 months. He substitutes SPDR S&P 500 ETF (SPY – inception January 1993) for any of the four that have weaker momentum than 90-day U.S. Treasury bills. He assigns weights of 40%, 30%, 20% and 10% to the resulting first, second, third and fourth selections. Prior to fund inception dates, he simulates returns using Vanguard mutual funds, asset class indexes or futures proxies. His benchmark is the Vanguard 500 Index Investor (VFINX). Using simulated and actual monthly returns for the specified funds during January 1986 through June 2025, he finds that: (more…)