- Another strategy to protect from market downside
- Strong risk-adjusted returns after costs
Asset allocation experts Keller and Keuning, who articulated the concept of generalised protective momentum (GPM), expanded their models with the innovation of so-called ‘canary assets’. Basically, if certain assets have negative returns momentum, it is a signal to switch the portfolio from risky to protective investments.
One strategy, proposed last year, is a Hybrid Asset Allocation (HAA). This sends US Treasury Inflation Protected Securities (TIPS) ‘down the mine’ as a canary asset that will tend to have negative momentum if real yields and/or inflation are rising. These are typically negative signals for risk assets, so watching for how TIPS are doing can guide investors whether they ought to be tactically ‘risk on’ or ‘risk off’ in their portfolios.