This is a twist on Antonacci’s modular approach and is actually the approach I prefer. We choose a universe of ETFs that represent various sectors, regions and asset classes, ranking them based on their return over the formation period and buy up to the best three ETFs whose absolute momentum is also positive. Essentially, this approach results in a sector rotation strategy that leverages the benefits of Dual Momentum. Robot WealthBootcamp membershave access to the complete research environment for reproducing and experimenting with this Dual Momentum Sector Rotation strategy.
- The purpose of The Investment Checklist is to help you implement a principled investing strategy through a series of checklists.
- Absolute momentum does not compare momentum of an asset with another asset.
- The crude summary is that EMT is wrong and momentum investing works.
- Best results were again with globally diversified stock indices.
- I 19m not sure there was really enough material for an entire book, but that 19s not why you buy a book like this anyway.
- Gary is an expert on the practical applications of momentum investing.
In order to read or download dual momentum investing an innovative strategy for higher returns with lower risk ebook, you need to create a FREE account. His methodology is designed to pick up on major changes in relative strength and market trend. Dual Momentum is about selecting assets that have both historically outperformed and also themselves generated a positive return. The first step in applying Dual Momentum is to compare the assets of interest against one another. If an asset has a higher return than another over the time period of interest, then it has positiverelativemomentum. We select the assets which have positive relative momentum for further analysis. Antonacci published an extremely simple yet highly effective extension to relative momentum.
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. 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. Readers please note that my implementations have some important differences from the approach that Gary describes in his book and on his website. A simple one is the three-fund-approach by the bogleheads on the related forum. A different kind of strategy is Dual Momentum by Gari Antonacci.
For me the effort to study this companies in depth; and I believe I would still not be sure I am doing it correctly, is not worth the increase in revenue. I may believe I am just in a down cycle and not find out I invested in the wrong company for ten to fifteen years. For me the cost to effort ratio, makes more sense to invest in a mutuel fund. I am skeptical of strategies that advertise all the advantages and limit discussion on the unique risks of a strategy. I would like to see more independent stress testing of this strategy in various market environments.
And it is a good strategy to follow even if you use one to the best performing investment strategies we have tested. to invest in one of the best investment strategies we have tested. This means if the asset (for example the S&P 500 index) shows a positive excess return during the past 12 months, you stay invested. Gary is an expert on the practical applications of momentum investing. His research on momentum won first place in 2012 and second place in 2011 of the prestigiousWagner Awards for Advances in Active Investment Management.
However, the sector rotation Gary describes on his website hereis, I think, very different to my implementation in that it examines the individual sectors of the US market only. In his paper, Antonacci provides a backtest that extends back to 1974 and which better captures this long-term outperformance .
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I then had to decide whether to be in individual stocks, stock sectors, stock styles (size, value, etc.), or stock indices. Similarly, it can also have positive absolute momentum if its trend has been positive and negative relative momentum if another companies have gone up more. To find a company’s absolute momentum, you compare the movement of its stock price with the return of a short term government bond over a certain period. This combined with its history of low volatility out-performance in my opinion makes it the perfect place to start for people who are new to trading, prior to investigating more complex strategies. Relative momentum compares the return of one asset to another. 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.
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Robot Wealth members have access to the code for implementing these systems and a research framework for additional experimentation. My personality is especially suited to a rules-based investing system like Dual Momentum. With the rules as clear cut as they are, there is no room for interpretation of “gut feel”.
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This post is going to run through the Dual Momentum rules and apply them to a hypothetical portfolio. That portfolio will be tracked here on Robotic Investing. Just what is the methodology and how do we replicate it in practice? Overall, I think it’s worth reading but don’t read too much in to it. This works best when using two or three ETF’s that are not strongly correlated.
We look at the relative performance of these two indices over the past 12-months to determine which of the two to invest in the following month. A 12-month lookback period is well-supported in academic research. It also keeps transaction costs low with less than one trade per year on average. There is also little tracking error since we are always invested in correlated stock indices. The strategy invests in the S&P % of the time and the MSCI ACWI ex-U.S. It is possible for a stock price to have positive relative momentum if it is strong relative to other companies and negative absolute momentum if its own trend has been down.
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Depending on the momentum of the S&P 500, the ACWI ex-US, and aggregate bonds, the investor is in one of the three at any one time. The specific Dual Momentum rules that Antonacci takes about in his book is Global Equity Momentum . With this strategy, the investor holds one asset at a time. The choice of assets are the S&P 500, the ACWI exuding U.S. index, or Aggregate Bonds.
Here is a performance chart of the iShares Russell Top 200 Growth ETF versus MTUM. IWY’s performance Foreign exchange market holding 200 growth stocks was equal to MTUM’s from MTUM’s start until mid-2019.
They use all momentum tools available to us in pursuit of high and consistent returns. Gary tested this dual momentum strategy over a 39 year period from October 1974 to October 2013. And this in spite of the fact that absolute momentum often provides better results and has more flexibility than relative momentum. Buying the most undervalued companies with the best relative momentum gives you market beating returns but it does not help you to reduce volatility or large falls in share prices. The type of momentum we found that works is called relative momentum.
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 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.
Below are the results of an ETF-based version of the modular approach described in Antonacci , as well as a sector-rotation approach. Transaction costs and ETF distributions have not been included in these simulations, however, would likely not have a significant impact on results given the typical holding period and trade frequency. Many think more complex models with more assets, factors, or lookback periods should give better results.
Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest trading strategy directly in an index. Please see ourDisclaimerpage for additional disclosures.
Dual Momentum Sector Rotation
Dual momentum investing can be used in any market environment due to its adaptable nature. He repeated this process every month from October 1974 to October 2013. During this time the strategy spent 41% of its time invested in the S&P 500, 29% in the ACWI ex-U.S., and 30% in aggregate bonds index. To do this you first use relative momentum to select the best-performing asset over the preceding 12 months. Dual momentum is the combination of relative and absolute momentum. Gary has a Harvard MBA and over 35 years of experience researching, developing, and using investment strategies that have their basis in academic research.
This is the basis behind absolute momentum, sometimes called time-series momentum. 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 Dual Momentum Investing: An Innovative Strategy for Higher Returns with is a twist on Antonacci’s modular approach, and is actually the approach I prefer. Robot Wealth members have access to the complete research environment for reproducing and experimenting with this Dual Momentum Sector Rotation strategy.
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Gary Antonacci has over 30 years experience as an investment professional focusing on under exploited investment opportunities. In 1990, he founded Portfolio Management Consultants, which advises private and institutional investors on asset allocation, portfolio optimization, and advanced momentum strategies. He writes and runs the popular blog and website optimalmomentum.com.