• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Allocate Smartly

  • About
    • What We Do
    • List of Strategies
    • Advanced Features
    • 19 Core Ideas
    • FAQs
    • Contact Us
  • Subscribe
  • Blog
  • Members

Keller Ratio: Finding the Best Strategy for an Investor’s Unique Risk Tolerance

April 24, 2018

We wanted to take a moment to highlight a post from the always smart JW Keuning describing a novel approach for measuring how well a strategy has performed relative to drawdowns (losses): Presenting the Keller Ratio.

Our preferred method for assessing a strategy’s return relative to drawdown has always been the Ulcer Performance Index, but the Keller Ratio offers the unique ability to adjust results based on an investor’s unique risk tolerance. In other words, the “best” strategy will be different for an aggressive versus a conservative investor.

In the spirit of cooperation, below we’ve shown Keller Ratio results for all of the strategies that we track, for investors with three different risk tolerances. See JW’s post to learn how the Keller Ratio is calculated. Note that the values alone don’t mean much – they’re most relevant when compared to one another. Values of zero mean that a strategy didn’t meet that investor’s risk tolerance.

Keller Ratio (20 Years, Adjusted for Timing Luck)
Use the Arrows to Sort This Table
Strategy Aggressive
K(50%)
Moderate
K(25%)
Conservative
K(10%)
Vigilant Asset Allocation 9.56% 5.27% 0.00%
Stoken’s Active Combined Asset – Monthly 9.11% 7.57% 0.15%
Stoken’s Active Combined Asset 9.09% 7.02% 0.00%
Adaptive Asset Allocation 9.01% 6.70% 0.05%
Allocate Smartly’s Meta Strategy 8.34% 7.50% 3.79%
Elastic Asset Allocation – Offensive 8.32% 5.27% 0.00%
Protective Asset Allocation 8.20% 7.04% 1.98%
Elastic Asset Allocation – Defensive 7.76% 5.83% 0.00%
Protective Asset Allocation – CPR 7.59% 6.40% 1.38%
Varadi’s Minimum Correlation Portfolio 7.52% 5.48% 0.00%
Flexible Asset Allocation 7.43% 5.90% 0.34%
Faber’s Global Tactical Asset Alloc. – Agg. 6 7.34% 4.60% 0.00%
Faber’s Global Tactical Asset Alloc. – Agg. 3 7.32% 3.20% 0.00%
Antonacci’s Composite Dual Momentum 7.30% 6.13% 0.44%
Classical Asset Allocation – Offensive 7.12% 5.16% 0.00%
Antonacci’s Global Equities Momentum 7.07% 3.26% 0.00%
Efficiente Index 6.75% 4.41% 0.00%
Keuning’s Generalized Protective Momentum 6.74% 5.25% 0.32%
Glenn’s Paired Switching Strategy 6.48% 2.25% 0.00%
Davis’ Three Way Model 6.43% 2.83% 0.00%
Classical Asset Allocation – Defensive 6.40% 5.73% 2.76%
Faber’s Global Tactical Asset Alloc. 13 6.38% 5.26% 0.68%
US Max Sharpe 6.25% 4.80% 0.00%
Varadi’s Percentile Channels 6.23% 5.56% 2.56%
Dalio’s All-Weather Portfolio 6.23% 4.92% 0.00%
Robust Asset Allocation – Balanced 6.23% 4.98% 0.00%
Faber’s Trinity Portfolio Lite 6.23% 3.24% 0.00%
Tactical Permanent Portfolio 6.20% 5.57% 2.77%
Faber’s Global Tactical Asset Alloc. 5 6.20% 5.12% 0.38%
Philosophical Economics’ Growth-Trend Timing 6.17% 0.59% 0.00%
Robust Asset Allocation – Aggressive 5.92% 4.10% 0.00%
Global Risk Parity Trend Following 5.89% 4.94% 0.68%
PortfolioCharts’ Golden Butterfly 5.88% 4.10% 0.00%
Faber’s Sector Relative Strength 5.53% 2.42% 0.00%
US Max Diversification 5.48% 4.49% 0.13%
Browne’s Permanent Portfolio 5.39% 4.16% 0.00%
Novell’s Tactical Bond Strategy 5.31% 4.56% 0.98%
US Risk Parity Trend Following 5.25% 4.59% 1.75%
US Min Correlation 5.21% 4.03% 0.01%
US Equal Risk Contribution 5.20% 3.70% 0.00%
60/40 Benchmark 3.68% 0.00% 0.00%
Faber’s Ivy Portfolio 1.69% 0.00% 0.00%

Note how the “best” strategy varies depending on the investor’s risk tolerance. The top strategy for our three hypothetical investors are:

  • AGGRESSIVE: Vigilant Asset Allocation
  • MODERATE: Stoken’s ACA – Monthly
  • CONSERVATIVE: Allocate Smartly’s Meta Strategy

When describing strategies, we always wrap “best” in quotations, as determining the best is a highly subjective exercise. There are so many different possible inputs, and so much is dependent on that unique investor. Having said that, these three strategies rise to the top of the list by a number of different metrics that we track.

Our take:

We like the ability of the Keller Ratio to tailor results to an investor’s unique risk tolerance.

If we had to put our finger on an opportunity to improve the metric it would be to incorporate the entire drawdown record (like the Ulcer Performance Index does), rather than just the single max drawdown.

Max drawdown tends to be driven by single significant events (like October, 1987). That means that designing strategies that simply minimize max drawdown, tends to increase the opportunity for overfitting the data, and thus, the likelihood of disappointing results out of sample. We’ve largely mitigated that problem by adjusting these results for “timing luck”, but most researchers don’t have the data/ability to do that.

Thank you to JW Keuning and Wouter Keller for the novel new idea. Both gentlemen are thought leaders in the tactical asset allocation space and we highly recommend following their work now.

* * *

Calculation notes:

  • Not all strategies have the same start date, so to compare apples-to-apples, we limited results to just the previous 20 years (i.e. since April, 1998). There were obviously still plenty of opportunities for sizeable drawdowns during that time.
  • We added one additional cool factor: we adjusted results for “timing luck” (i.e. we averaged results for monthly trading strategies across all possible “alternate trading days”). That means these results are a lot less prone to overfitting and much more useful for modelling future performance. If you’re new to the concept of timing luck, start here.
  • Had we instead used all data for all strategies, and not adjusted for timing luck, results would have looked like this.

Filed Under: TAA Analysis

Previous Post
Next Post

Primary Sidebar

About Us

We have built a platform to track the industry's best Tactical Asset Allocation strategies in near real-time, and combine them into custom portfolios.

Learn about what we do or take our platform for a free test drive.

Follow Our Blog

Recent Posts

  • Front-Running Seasonality in Country ETFs: An Extended Test
  • New Feature: Walked-Forward Optimal Strategy Combinations (aka “Meta Walk-Forwards”)
  • Walking Forward Optimal Strategy Combinations
  • Taming Excessive “Timing Luck” in TAA by Tranching Strategies
  • Piard’s Annual Seasonality

Categories

Footer

About Us

We have built a platform to track the industry's best Tactical Asset Allocation strategies in near real-time, and combine them into custom portfolios.

Learn about what we do and take our platform for a free test drive.

New from Our Blog

  • Front-Running Seasonality in Country ETFs: An Extended Test April 29, 2025
  • New Feature: Walked-Forward Optimal Strategy Combinations (aka “Meta Walk-Forwards”) April 22, 2025
  • Walking Forward Optimal Strategy Combinations March 31, 2025

Helpful Links

  • What We Do
  • List of Strategies
  • Advanced Features
  • Subscribe
  • Blog
  • FAQs
  • Contact Us
  • Member Login

Stay Informed

Follow the latest research from our blog via Twitter, RSS and email:

© 2025 Allocate Smartly. All rights reserved.
  • Affiliates
  • Terms of Service
  • Privacy