Dual Etf Momentum

Dual Etf Momentum

Pubblicato: giovedì, 24 Settembre 2020

A different kind of strategy is Dual Momentum by Gari Antonacci. In his book, Antonacci offers what he calls “a do-it-yourself” easy approach to investing based on his research going all the way back to turn of the previous century. Step by step, the book outlines ideas and methods to approaching two simple tools, relative and absolute momentum, which Gary combines in what he calls the Dual Momentum. All the calculations are done once a month, and there is a minimum number of trades. Even though the concept is easy to grasp and the book is easy to read , not many investors follow the suit allocating the strategy more into the niche rather than a general strategy. The next set of chapters gives background information to the GEM strategy. A number of alternative asset classes and investment strategies are examined.

The strategy is a rather unassuming yet efficient combination of equity universe selection based on relative price momentum and a risk management strategy based on relative equity market momentum compared to T-bills. Since T-bills will return something close to zero, this latter could be said to be an absolute strategy. Since the stock indices lack a risk management strategy, the best relative performance for GEM is in stock market crashes. The absolute momentum part is obviously an intellectual cousin to using 200-day moving averages and Antonacci shows that the strategies yield very similar results. However, I think the risk for the average investor is not necessarily that 12M somewhat underperforms say 8M or 9M going forward. There’s nothing wrong with these other long lookback periods and I would easily take 8M or 9M’s historical return profile over a 60/40 portfolio. In my view the biggest risk is being entirely invested in stocks and having the market go through a major 1987-on-steroids event.

Dual Momentum Investing Review

If international stocks have a higher return than the S&P and cash, you hold international stocks. If cash has a higher return than stocks, you hold the bond fund. This is a dynamic approach https://forexarena.net/ to asset allocation, using only stocks and bonds for reasons that the author explains. The model (Global Equity Momentum–GEM) switches between the S&P 500 and the ACWI ex-U.S.

Scott’s Investments

Dual momentum combines both relative momentum (cross-sectional comparison against other assets’ performance) and absolute momentum (time series comparison against the asset’s own historical performance. Readers please note that my implementations have some important differences from the approach that Gary describes in his book and on his website.

If T-bills are higher than the S&P 500, then invest in bonds, such as with BND. If T-bills are less than the S&P 500, then apply relative momentum to the S&P 500 and VEU and invest in the better preforming of the two. Next, we look at theabsolute momentum of individual assets. Relative momentum compares the return of one asset to another.

The general conclusion is that investors haven’t been able to generate alpha through them or that they haven’t shown much absolute returns over time or that something else is wrong with them. Although I sympathize with momentum investing I found this part a bit over- selling. At this point, I am absolutely not sold on momentum investing and it seems a bit more like trading than investing. Honestly, trading is fun, and I do some in my Mastering Private Equity Set Review short-term portfolio, but it’s super risky and honestly just somewhat dumb. I do it because I’m very young and I want to take the risk early in my life to try to get some big returns because the stock market is just sooo volatile, but it’s really on a very, very small portion of my portfolio. Note that my implementations have some important differences from the approach that Gary describesinDual Momentum Investingandon his website.

Dual Momentum Investing Review

Taking our assets with positive relative momentum, we would only consider buying those assets whose absolute momentum is also positive. Antonacci published an extremely simple yet highly effective extension to relative momentum. I just finished reading Gary’s book and have been doing some research of it online. It looks investing rules that you have listed here are slightly different than what he has in his book, at least by my interpretation. Correct me if I’m wrong, but isn’t absolute momentum comparing the S&P 500 to the “risk free” investment of something like BIL (T-bills).

Dual Momentum Investing

At the cost of some tracking error and whipsaws, absolute momentum has shown an ability to protect investors from extreme losses during bear markets. This is not a text on stock picking strategies as I mistakenly assumed; it’s a book on asset allocation using momentum strategies. Gary Antonacci with a background in as diverse areas as the US Military, Harvard Business School and touring as a comedy magician, is a pioneer in developing derivate-based investment strategies.

  • In my 2011 momentum paper, I came up with a type of momentum that attempts to mitigate downside risk.
  • Antonacci hints at how dual momentum and relative momentum can be used across these various asset classes as asset allocation and risk management tools, the specifics of which he gets into towards the end of the book.
  • I did this by using short or intermediate-term U.S.
  • Treasury notes as an alternative to equities when notes were performing better.
  • Relative momentum applied to global stock indices is a good way to enhance expected returns for buy-and-hold investors.
  • But it does not offer a downside protection advantage over traditional buy-and-hold investing.

Gary’s equities implementation is called Global Equities Momentum and you can see its performance and read the fine printhere. One of the key differences is that the trend of the US market determines the trend of all equities indices. In other words, if the return of the S&P500 is less than the return of short-term treasuries, we hold bonds regardless of the performance of foreign stocks. The reasoning for this is research referenced in Gary’s book that shows the US stock market leading global equities markets.

The asset with the higher momentum has a better trend and is a better investment. An investor chooses the asset that has been outperforming on a relative basis in the hope that the out performance will continue. It is possible for an asset to have positive relative momentum and negative absolute momentum. For example, if the whole market was going down, the best performer in such a bear market would have positive relative momentum, but it might have negative absolute momentum.

Strategy Rules:

Antonacci hints at how dual momentum and relative momentum can be used across these various asset classes as asset allocation and risk management tools, the specifics of which he gets into towards the end of the book. Relative momentum applied to global stock indices is a good way to enhance expected returns for buy-and-hold investors. But it does not offer a downside protection advantage over traditional buy-and-hold investing. In my 2011 momentum paper, I came up with a type of momentum that attempts to mitigate downside risk. I did this by using short or intermediate-term U.S. Treasury notes as an alternative to equities when notes were performing better. This is the basis behind absolute momentum, sometimes called time-series momentum.

In the short backtest posted here, there is only one month when this makes a difference, but it may be more significant in the long term. For many active investors and managers, the reward may not justify the risk. It’s rules-based.There’s no discretionary decisions required. The relative momentum rule requires a comparison of the past 12 month returns for U.S. versus international stocks. The absolute momentum rule compares the higher trending of these two stock markets to the past 12 month returns for t-bills. If the S&P 500 has a higher return than both international stocks and cash, you hold the S&P.

Maybe the Newfound 7 system would have you only 60 percent in stocks in that event . That’s why I say you should never put all your money in one strategy. This risk is also why aggregation is not as effective at reducing system risk, even if you find a certain combo that shows good backtested results. Next, we look at theabsolutemomentum of individual assets. That is, we look at the performance of individual assets compared only to themselves. In simple terms, if an asset has a positive return over the time period of interest, its absolute momentum is positive, and if its return is negative, its absolute momentum is negative.

Dual Momentum Investing Review

based on relative strength momentum and uses aggregate bonds as a safe haven during bear markets based on absolute momentum signals taken from the S&P 500. Momentum has been observed across financial markets over long time frames, but the momentum investment philosophy has yet to achieve widespread acceptance within the public. Ben Graham inspired legions of copy-cat value investors, Foreign exchange market but where is the Ben Graham of momentum and where are the legions of momentum traders? In a world where investors usually seek to combine uncorrelated risks of all stripes to achieve better risk-adjusted returns, momentum seems like a “no-brainer” addition to a portfolio. Dual momentum is a trading strategy that was originally expounded by Gary Antonacci in his original book.

Todays Market Breadth (click For More)

Here he’s written a book aiming to take the academic underpinnings of momentum strategies and show how these can be profited from. The proposed strategy called Global Equities Momentum uses a combination of relative momentum to decide where to invest within equities and absolute momentum to decide when to be in equities in the first place. Finally, the stage is set for a discussion of the details of momentum, and Antonacci’s Dual Momentum strategy itself.

Dual Momentum Investing Review

Antonacci describes the well-known concept of relative strength momentum, and also defines the lesser-known absolute momentum. A simple one is the three-fund-approach by the bogleheads on the related forum.

Lists With This Book

The Dual Momentum approach would prevent us from buying such assets. Likewise, an asset might be going up and have positive absolute momentum, but if other assets performed better, it would have negative relative momentum. The Dual Momentum approach would force us into the assets that had both gone up and outperformed their peers. Instead of diversifying between US and international stocks, this relative momentum approach holds exclusively one or the other. The biggest single driver of the selection is U.S. dollar strength or weakness. When a strong dollar is eroding international stock performance in USD terms , the system sticks with the S&P and skips the performance drag of international diversification. Antonacci combines to two approaches into a single system, hence the term dual momentum.

Category: Forex Trading
Tag: none