The KISS Model Portfolio

A thoughtful evolution of the 60/40 portfolio framework, the KISS portfolio is a systematic, long-only investment strategy designed for long-term, low-turnover investors.

The KISS portfolio is a 60/30/10 trend-following strategy that aims to simplify investing, minimize downside during bear markets, and maximize upside during bull markets – all with the express intent of demonstrably outperforming the traditional 60/40 portfolio over the long term.

Since the start of 2018, when the rolling out-of-sample backtest began, the KISS Model Portfolio has generated a compound annual growth rate of +15%, which is roughly twice the CAGR of +8% for the 60/40 portfolio.

Moreover, the KISS Model Portfolio has outperformed while also subjecting investors to lower risk. Specifically, the maximum drawdown of -12% for the KISS Model Portfolio compares very favorably to the maximum drawdown of -23% for the 60/40 portfolio.

Furthermore, the KISS Model Portfolio’s risk-adjusted return, as measured by a Sharpe Ratio of 0.8, outpaces the 0.5 Sharpe Ratio of the 60/40 portfolio. KISS Model Portfolio’s Calmar Ratio – the compound annual growth rate divided by the maximum drawdown – of 1.3 dramatically outpaces the Calmar Ratio of 0.3 for the 60/40 portfolio. A Calmar Ratio greater than 1 is considered excellent in institutional finance, thus, KISS Model Portfolio’ Calmar Ratio of 1.3 is exceptional.

The KISS Model Portfolio was expressly designed for retail investors and RIAs who are fed up with discretionary investment strategies that have caused them to consistently and demonstrably lag broad market returns.

42 Macro Founder and CEO Darius Dale also uses the KISS Model Portfolio to manage his entire liquid net worth.

We developed our Discretionary Risk Management Overlay specifically for long-short investors who have chosen not to implement the KISS Model Portfolio — likely because they are institutional investors or because they believe they can outperform KISS Model Portfolio with their own discretionary trading process.

You can find more information about the Discretionary Risk Management Overlay via our Dr. Mo FAQ .

The maximum exposure to each asset class is 60% Stocks, 30% Gold, and 10% Bitcoin.

The actual exposure depends on signals generated by our Global Macro Risk Matrix and Volatility Adjusted Momentum Signals (VAMS).

Specifically, the trend-following strategy employed by the KISS Model Portfolio increases exposure to each asset class when our Global Macro Risk Matrix and VAMS generate incrementally bullish signals in Market Regime terms or for a particular asset class, and decreases exposure when our Global Macro Risk Matrix and VAMS generate incrementally bearish signals in Market Regime terms or for a particular asset class.

The latest KISS Model Portfolio allocations are featured in the latest Around the Horn report, which may be an Around the Horn Intraweek Update if the most recent change occurred during the week. Scroll to the slide titled, “Current KISS Model Portfolio (Implement The Pie Chart)”. Implementing KISS Model Portfolio is a simple as aligning one’s portfolio with weights and ETFs featured in the pie chart.

The latest KISS Model Portfolio allocations are also featured in the SIGNALS module of the 42 Macro member Dashboard along with the latest Dr. Mo proper trade signals and Volatility-Adjusted Momentum Signals (VAMS) for the roughly 70 factors we maintain models for within the US Equities, Global Equities, US Fixed Income, Global Fixed Income, Currencies, Commodities, and Crypto asset classes.

KISS Model Portfolio’s default Equity exposure is VT, KISS’ default Gold exposure is GLDM, KISS’ default Bitcoin exposure is FBTC, and KISS Model Portfolio’s default Cash exposure is USFR.

KISS determines exposure via two independent steps.

First, the Target Allocation is determined by the Top-Down Risk Management Overlay, which is driven by our Global Macro Risk Matrix Market Regime nowcasting process. If the Market Regime is in a risk-on condition (i.e., GOLDILOCKS or REFLATION), then the Target Allocation for Stocks is maxed out at 60%. If the Market Regime is in a risk-off condition (i.e., INFLATION or DEFLATION), then the Target Allocation for Stocks is cut in half to 30%. If the Market Regime is GOLDILOCKS, REFLATION, or DEFLATION, then the Target Allocation for Gold is maxed out at 30%. If the Market Regime is INFLATION, then the Target Allocation for Gold is cut in half to 15%. If the Market Regime is in a risk-on condition (i.e., GOLDILOCKS or REFLATION), then the Target Allocation for Bitcoin is maxed out at 10%. If the Market Regime is in a risk-off condition (i.e., INFLATION or DEFLATION), then the Target Allocation for Bitcoin is cut in half to 5%.

Second, the Actual Exposure investors maintain in their portfolios — including 42 Macro Founder & CEO Darius Dale, who uses KISS to manage his entire liquid net worth — is determined by the Bottom-Up Risk Management Overlay, which is driven by our Volatility-Adjusted Momentum Signal (VAMS). If an asset is Bullish VAMS, then the Actual Exposure = 100% of the Target Allocation. If an asset is Neutral VAMS, then the Actual Exposure = 50% of the Target Allocation. If an asset is Bearish VAMS, then the Actual Exposure = 0% of the Target Allocation.

Yes. Subscribers of the Macro Risk Manager and Macro Strategist Pro will receive real-time alerts to any changes to the KISS Model Portfolio allocations or Dr. Mo signals via email and/or text. To manage 42 Macro alerts, log in and select Manage Notifications from the menu.

Yes. The purpose of the KISS Model Portfolio is threefold: 1) to help investors block out the noise and remain invested heading into and throughout bull markets; 2) to help investors block out the noise and remain uninvested heading into and throughout bear markets; and 3) to outperform the traditional 60/40 portfolio. KISS Model Portfolio can only help investors accomplish these three goals if they dutifully implement each pivot by dollar cost averaging in response to buy signals and selling quickly in response to sell signals.

Over time either the size of the VT, GLDM, or FBTC positions may grow or decline in size relative to the most recent Actual Exposure publication due to market performance. Thus, rebalancing is required at regular intervals to minimize tracking error.

There is no right answer for how best to rebalance because each investor has a different tax situation and bandwidth for investing.

The strategy that 42 Macro Founder and CEO Darius Dale employs is to rebalance his portfolio each time KISS Model Portfolio signals a change in the Actual Exposure in one (or more) of the ETFs. Per the out-of-sample backtest referenced above, there has been an average of only two trades per month since Jan-18. That equates to two opportunities to rebalance per month, if market performance warrants rebalancing.

Another strategy would be to rebalance on a calendar-based frequency – i.e., at the end of each week, month, or quarter.

Again, there are no right answers for rebalancing. Investors should explore multiple options and settle on what works best for them.

It is always best to dollar cost average (DCA) over time when allocating significant amounts of capital to asset markets. Dollar cost averaging provides investors the best opportunity to take advantage of price dislocations in asset markets to lower the cost basis of positions.

Much like rebalancing, there is no right answer for dollar cost averaging speed. The speed with which an investor should dollar-cost average depends on two highly personalized factors: 1) the bandwidth a particular investor might have to execute trades; and 2) their unique susceptibility to Myopic Loss Aversion, or sensitivity to short-term unrealized losses.

The strategy employed by 42 Macro Founder and CEO Darius Dale is to fill a particular position in two tranches over two weeks. The goal is to wait patiently for a meaningful down day each week, which buy limit orders help facilitate. If there are no meaningful down days, then Darius executes his buy orders on Friday.

Darius’ DCA strategy would build a 60% position in VT over two weeks via two 3,000bps purchases.

Darius’ DCA strategy would build a 30% position in GLDM over two weeks via two 1,500bps purchases.

Darius’ DCA strategy would build a 10% position in FBTC over two weeks via two 500bps purchases.

Please note that we do not recommend a specific speed for dollar-cost averaging. Again, the speed with which an investor should dollar-cost average depends on two highly personalized factors: 1) the bandwidth a particular investor might have to execute trades; and 2) their unique susceptibility to Myopic Loss Aversion, or sensitivity to short-term unrealized losses.

Each DIY investor must use trial and error to determine what dollar-cost averaging speed works best for them and their unique susceptibility to Myopic Loss Aversion.

Occasionally new members join during severe risk-off Market Regimes whereby the Top-Down and Bottom-Up Risk Management Overlays have materially reduced KISS’ Actual Exposures to VT, GLDM, or FBTC. This presents a conundrum regarding the risk of selling into a drawdown that may potentially end in short order.

It is at precisely this moment whereby ~fully invested new members must decide which risk is more important for them to mitigate – the risk of a Type 1 error or “false alarm” by selling low and reinvesting at higher prices once KISS’ Top-Down and Bottom-Up Risk Management Overlays signal the coast is becoming clear OR the risk of a Type 2 error or “destabilizing drawdown” by continuing to ride out the bear market.

New members who are ~fully invested and did not receive our signals to reduce exposure earlier in the risk-off Market Regime are at a significant disadvantage relative to members who received our signals earlier and, thus, have a different decision to make. While we empathize with any ~fully invested new members facing this difficult decision, we cannot offer specific guidance other than to communicate that, in general, our systematic macro risk management process is all about avoiding Type 2 errors – the more costly of the two errors – by remaining on the right side of market risk via the use of high-quality trend-following signals.

Factors that may influence a ~fully invested new member’s decision to reduce exposure later in a risk-off Market Regime may include: the length of time since KISS began reducing Actual Exposure to the various asset classes, recent directional changes to the Volatility-Adjust Momentum Signal (VAMS) condition of the 42 leading indicators we use to determine the Market Regime via the Global Macro Risk Matrix (i.e., are they getting less bearish or more bearish at the margin), the themes and theses espoused in 42 Macro’s Fundamental Research Summary, and/or the member’s unique tax implications.

At the end of the day, we are all here because we believe in the power of 42 Macro’s institutional-grade risk management overlays. Trust the process – even if it hurts in the short-term. Avoiding Type 2 errors over the long-term is unquestionably the fastest way to achieving an on-time and comfortable retirement.

Investors may choose different exposures that better align with their strategic investment objectives and risk tolerance. Consult our Discretionary Risk Management Overlay for ideas. Such ideas may include (but are far from limited to):

• A preference for specific equity sectors, factors, or geographies instead of broad global equity beta;
• A preference for yielding fixed income instead of gold;
• A preference for physical commodities instead of digital commodities like Bitcoin;
• A greater Target Allocation to stocks (e.g., +1,000bps 70%) in lieu of gold (e.g., -1,000bps to 20%);
• A greater Target Allocation to Bitcoin (e.g., +1,000bps to 30%) in lieu of gold (e.g., -2,000bps to 10%)… etc.

The possibilities are endless. Figure out what works for you, your strategic investment objectives, your risk tolerance, and product availability. And, most importantly, STICK TO THE PLAN. It is never a good idea to disregard KISS’ Top-Down and Bottom-Up Risk Management Overlay pivots. It is far better to reassess your customized version of KISS during calm market periods or at regular intervals (e.g., quarterly or annually).

Investors implementing a customized version of the KISS Model Portfolio can execute the Top-Down and Bottom-Up Risk Management Overlays for the ETFs they have selected by using the Market Regime (Top-Down) and VAMS (Bottom-Up) signals published daily in the Discretionary Risk Management Overlay.

The Discretionary Risk Management Overlay does NOT determine the exposures or allocations in the standard KISS Model Portfolio.

The Discretionary Risk Management Overlay should only be used by investors implementing a customized version of the KISS Model Portfolio, or by investors that have elected to not implement KISS Model Portfolio.

Investors that choose to implement the standard KISS Model Portfolio need not consult the Discretionary Risk Management Overlay – or any other element of 42 Macro research – for any reason. The Target Allocation and Actual Exposure for the VT, GLDM, FBTC, and USFR ETFs are explicitly communicated in the KISS Model Portfolio slides – specifically the slide titled, “Current KISS Model Portfolio (Implement The Pie Chart)”.

If you opt to implement a customized version of KISS Model Portfolio, the Actual Exposures in your portfolio will differ from the standard KISS Model Portfolio and will depend on the ETFs you have chosen.

Regarding the Top-Down Risk Management Overlay for your preferred Equity ETFs, if the Market Regime is in a risk-on condition (i.e., GOLDILOCKS or REFLATION), then the Target Allocation for your customized equity ETF or basket of customized equity ETFs = 60%. If the Market Regime is in a risk-off condition (i.e., INFLATION or DEFLATION), then the Target Allocation for your customized equity ETF or basket of customized equity ETFs gets cut in half to 30%. You may choose to divide the Target Allocation for Stocks evenly among equity ETFs.

Regarding the Top-Down Risk Management Overlay for your preferred Fixed Income ETFs, if the Market Regime is GOLDILOCKS, REFLATION, or DEFLATION, then the Target Allocation for your customized fixed income ETF or basket of customized fixed income ETFs = 30%. If the Market Regime is INFLATION, then the Target Allocation for your customized fixed income ETF or basket of customized fixed income ETFs gets cut in half to 15%. You may choose to divide the Target Allocation for Gold evenly among fixed income ETFs.

Regarding the Top-Down Risk Management Overlay for your preferred Alternative ETFs, if the Market Regime is in a risk-on condition (i.e., GOLDILOCKS or REFLATION), then the Target Allocation for your customized alternative ETF or basket of customized alternative ETFs = 10%. If the Market Regime is in a risk-off condition (i.e., INFLATION or DEFLATION), then the Target Allocation for your customized alternative ETF or basket of customized alternative ETFs gets cut in half to 5%. You may choose to divide the Target Allocation for Bitcoin evenly among alternative ETFs.

Regarding the Bottom-Up Risk Management Overlay, if the VAMS for a particular ETF – regardless of asset class – is bullish, the Actual Exposure for that ETF equals 100% of its share of the Target Allocation for the corresponding asset class. If the VAMS for a particular ETF – regardless of asset class – is neutral, the Actual Exposure for that ETF equals 50% of its share of the Target Allocation for the corresponding asset class. If the VAMS for a particular ETF – regardless of asset class – is bearish, the Actual Exposure for that ETF equals 0% of its share of the Target Allocation for the corresponding asset class – i.e., no position.

There are several strategies international investors can use to offset currency risk while participating in KISS Model Portfolio.

The easiest strategy would be to accept the fact that over long-enough time horizons, currencies are stationary time series whose impact on returns will effectively “come out in the wash”. This is especially true for assets that tend to be inversely correlated to the US dollar, like US Stocks, Gold, and Bitcoin.

Alternatively, investors may allocate to currency-hedged US Stocks, Gold, and Bitcoin ETFs that are denominated in their home currencies on their local exchanges.

The hardest strategy would be to short US dollars in proportion to the gross exposure of the KISS Model Portfolio positions. This can be accomplished directly in forex markets or via the use of currency ETFs (e.g., FXE, FXY, FXB, FXF, FXA, FXC, or UDN)

In the event a Market Regime phase transition takes place, it may impact one or more of the Target Allocations for the VT, GLDM, and FBTC positions in KISS per the Top-Down Risk Management Overlay. Any changes will also impact the Actual Exposures for the corresponding positions per the Bottom-Up Risk Management Overlay.

In the event a Volatility-Adjusted Momentum Signal (VAMS) phase transition takes place for the VT, GLDM, or FBTC ETFs, it will impact the Actual Exposure for the corresponding position per the Bottom-Up Risk Management Overlay.

If you are implementing a customized version of KISS Model Portfolio, the Top-Down Risk Management Overlay logic still applies to each asset class. You will note any change in the Market Regime at the top of the Discretionary Risk Management Overlay table.

If you are implementing a customized version of KISS Model Portfolio, the Bottom-Up Risk Management Overlay logic still applies to each position. You will find any changes in the Volatility-Adjusted Momentum Signal of the ETFs you have diversified into in the VAMS columns of the table.

Please note that the Proper Trade signals in the Discretionary Risk Management Overlay do NOT correspond to KISS Model Portfolio. They are only there for investors who have declined to implement the standard KISS Model Portfolio — i.e., the institutional investors among the members of our global investor community, as well as the retail and RIA investors who believe they can outperform KISS Model Portfolio with their own investment process. We are happy to support them either way.

Because asset markets typically “take the stairs up and the elevator down,” a good rule of thumb is to be patient when increasing positions and be in a hurry when reducing positions. That is how 42 Macro Founder and CEO responds to KISS Model Portfolio Actual Exposure pivots in his portfolio.

When building positions, the strategy employed by 42 Macro Founder and CEO Darius Dale is to fill a particular position in two tranches over two weeks. The goal is to wait patiently for a meaningful down day each week, which buy limit orders help facilitate. If there are no meaningful down days, then Darius executes his buy orders on Friday.

Darius’ DCA strategy would build a 60% position in VT over two weeks via two 3,000bps purchases.

Darius’ DCA strategy would build a 30% position in GLDM over two weeks via two 1,500bps purchases.

Darius’ DCA strategy would build a 10% position in FBTC over two weeks via two 500bps purchases.

Please note that we do not recommend a specific speed for dollar-cost averaging. Again, the speed with which an investor should dollar-cost average depends on two highly personalized factors: 1) the bandwidth a particular investor might have to execute trades; and 2) their unique susceptibility to Myopic Loss Aversion, or sensitivity to short-term unrealized losses.

Each DIY investor must use trial and error to determine what dollar-cost averaging speed works best for them and their unique susceptibility to Myopic Loss Aversion.

You don’t. The KISS Model Portfolio and the Discretionary Risk Management Overlay are two independent processes that are not to be reconciled. The only signals that correspond to KISS Model Portfolio are those featured on the KISS Model Portfolio slides in our research.

The Proper Trade signals generated by the long-short Discretionary Risk Management Overlay do not have any impact on the long-only KISS Model Portfolio. Dr. Mo’s Proper Trade signals are only relevant for discretionary investors who have declined to implement our standard KISS Model Portfolio.

KISS Model Portfolio is not designed to trade every wiggle in global financial markets. Rather, KISS Model Portfolio is designed to capture the bulk of the medium-term uptrends and avoid the bulk of the medium-term downtrends in the stock, gold, and crypto markets.

Investors implementing KISS Model Portfolio should not attempt to reconcile KISS Model Portfolio with any of our other signals. The only signals that members of our global investor community require to implement the KISS Model Portfolio are the Actual Exposure percentages on the KISS Model Portfolio “Implement The Pie Chart” slide and the Volatility-Adjusted Momentum Signal (VAMS) conditions for their preferred exposures in the Discretionary Risk Management Overlay “Dr. Mo” table if they are implementing a customized version of KISS Model Portfolio.

Refer to the other entries in our KISS Model Portfolio FAQ for insights on how to implement a customized version of KISS Model Portfolio. Everything else we publish is essentially irrelevant to you if you are implementing the KISS Model Portfolio, which we believe provides retail investors the best opportunity to retire on time and comfortably, with relatively minimal effort on the trading front.

All told, if KISS Model Portfolio is fully allocated early in a cross-asset correction, please trust that KISS Model Portfolio’ Top-Down and Bottom-Up Risk Management Overlays will do their jobs and protect our portfolios from unacceptable losses. Alternatively, if KISS Model Portfolio is under allocated early in a cross-asset recovery, please trust that KISS Model Portfolio’ Top-Down and Bottom-Up Risk Management Overlays will do their jobs and get members of our global investor community portfolios fully invested in short order. The sophisticated systems that drive KISS Model Portfolio’ Top-Down and Bottom-Up Risk Management Overlays are derived from proven quantitative techniques that help many of the world’s top institutional investors accomplish these critical endeavors.

The beta-adjusted S&P 500 delta is a statistical measure designed to signal how the current KISS portfolio and its individual positions are likely to mimic everyone’s favorite benchmark asset—the S&P 500.
 
The measure is calculated by multiplying each ETF’s Actual Exposure by its respective trailing six-month beta to the S&P 500 index. For example, a 10% position in FBTC is essentially a 9% position in the S&P 500 when factoring in its 0.9 beta (as of 5/16/25). The aggregate beta-adjusted S&P 500 delta is simply the sum product of each of the ETF’s individual beta-adjusted S&P 500 deltas.
 
Please note that the beta-adjusted S&P 500 delta is not a comprehensive measure of risk; nor does it represent a forecast of how the Actual Exposures or betas are likely to evolve in the future. Investors should simply use it as a quick proxy for how exposed the KISS portfolio is to fluctuations in the S&P 500’s price.