I don’t think you should consider performance since 2009 without also including 2008. Giving up some returns when a bear markets abruptly ends is the cost of avoiding the preceding extreme bear market drawdown. Back-tests only tell you what has happened, not what will happen.This is true of all investment strategies, but it’s worth remembering that the future is promised to no one in the markets. It’s a low activity strategy.The rules are only checked once a month for rebalancing purposes, which leads to a fairly low turnover compared to other momentum strategies.
My thoughts are that circuit breakers could trigger several days in a row almost immediately after market open because of crowd behaviour pushing sell orders into the market as fast as possible at 930AM to beat the breaker. I don’t see a whole lot of people buying under those conditions if they have no clue what their fill prices are going to be. There should be some examples of their impact on single stocks. In conclusion, no investor with even moderate wealth should put all of their money into a single investment model. Models can look great in backtests and may even perform very well going forward; however, we cannot predict that 12M Dual Momentum will provide 5-year rolling annualized returns between 3 percent and 45 percent going forward. An investor with large accounts is likely more interested in preserving capital than growing wealth.
According to the book, going back to 1974, the strategy only made an average of 1.35 changes per year. But something wasn’t adding up for Antonacci, who thumbed his nose at EMH proponents at the University of Chicago . He saw that certain respected and successful investors, such as George Soros and Paul Tudor Jones, were able to systematically beat the market. Even Nobel Laureate Paul Samuelson, who was an early architect of EMH, invested his own money with Warren Buffett.
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That’s a pretty good boost, using only two well-diversified broad indexes. One can obtain similar numbers using small cap vs large cap or growth vs value relative momentum models. But these approaches inherently involve less-diversified sector overweights. The biggest benefit through a diversified approach is that it can provide and emotional hedge and hopefully lower the amount of risk you take by spreading things out amonst asse classes & strategies.
Multiple lookback periods as part of a trading system can be quite beneficial when this is the investor’s focus. If a self-directed investor grows their personal accounts to a substantial size, there are some https://forexarena.net/ benefits to introducing additional lookback periods into the Dual Momentum portfolio of their portfolio. As this backtest demonstrates, additional lookback periods are likely to reduce overall drawdowns.
Here is also some information about the proprietary models we license to advisors and family offices. They use all momentum tools available to us in pursuit of high and consistent returns. Those interested in the best ways to use momentum should look at them.
We know of no better way to invest in the fixed income market than momentum applied to bond sectors. Momentum does best with a limited portfolio of stocks, and MTUM holds only 125 stocks. MTUM’s annual expense ratio of 0.15% is multiples lower than the expense ratios of most of the other momentum finds. MTUM also uses a lower threshold for exiting stocks than it does for buying them.
Absolute momentum is one of the few edges that individual traders have over institutions. Instead of retreating to T-bills, though, Antonacci’s absolute momentum system goes to bonds (Barclays Aggregate, with a duration of 5.7 years). Empirical observations show that bonds perform better than average when stocks are on a sell signal, which often coincides with recession.
- 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.
- At this point, I am absolutely not sold on momentum investing and it seems a bit more like trading than investing.
- One of the key differences is that the trend of the US market determines the trend of all equities indices.
- Honestly, trading is fun, and I do some in my short-term portfolio, but it’s super risky and honestly just somewhat dumb.
- Gary’s equities implementation is called Global Equities Momentum and you can see its performance and read the fine printhere.
One solution is to use only two assets – the S&P 500 representing U.S. stocks and the MSCI All Country World Index ex- U.S. for the rest of the world. DMFI’s return has been comparable to the stock market. Yet its volatility and downside risk has been lower than intermediate-term Treasury notes.
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It can all get a little confusing and, in the end, probably comes down to a heuristic decision that reflects an investor’s philosophy and concerns for risk. An investor must feel comfortable with his/her decision. I would suggest that the diversified 4 group system is probably a far better (more “robust”) system to adopt for long term investment. It will likely continue to exhibit low volatility and drawdowns with “acceptable” (risk-adjusted) returns.
If I had launched a dual momentum fund at the same time that I started investing my own nest egg in this manner, it’s safe to say that big money would not be flowing into my fund right about now. 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. Gary Antonacci has over 40 years experience as an investment professional focusing on underexploited investment opportunities. Still, it is interesting and relatively brief reading for anyone interested in ways to minimize risk while maintaining reasonable returns in a systematic but simple way.
Meanwhile, in academia, researchers began to ask questions that EMH could not easily answer; they identified various market anomalies, and explored how behavioral finance research might explain them. Among the most puzzling of these anomalies was the momentum effect, which refers to persistence in performance. Personally, of the books that I have read with tangible strategies, this is potentially my favorite one!
I would add that beyond what you stated the career risk would be far too great for the pension & endowment portfolio allocators. Another reason that these rules should continue to work more oftern than not over time. Big institutions are never going to engage in absolute momentum market timing. Among other things, trading cost escalates in proportion to share volume raised to the 1.5 power, owing to price impact.
This reduces portfolio turnover and transaction costs. While I cannot read Antonacci’s trader mind, I suspect he wanted to keep the strategy as simple as possible in the book.
From 2014 till now, the dual momentum GEM strategy has vastly underperformed a simple buy and hold of the S&P500 index. It in my view dual momentum has done a great job of achieving both of these goals. And I see no reason why the future performance of this strategy should be any different.
In this post, we’ll reproduce Gary Antonacci’s dual momentum strategy using FT Cloud, Investors FastTrack’s data and portfolio modeling product. Every month the Performance page of my website updates the performance of our dual momentum models.
Eliminating gold and commodities certainly simplifies the strategy. To me it would be interesting to see a back-test comparison of the Rutherford Portfolio against the 4-group dual momentum portfolio. I ‘flinch’ at holding ‘some’ of each of the 4 groups when it seems like there might be periods where at least one of those four groups you might want to avoid completely. Do you intend on following one of these dual momentum approaches real time so that less confiscated subscribers can use it? Low max draw downs are very important to me given my advance age. Again, thanks for pursuing a very interesting concept and sharing it with us. Of course, for “contrarian” investors there is also the option to do exactly the reverse of this (using an “upside down” strategy) based on the thinking that higher returns come from accepting higher risk.
Backtest Dual Momentum In Ft Cloud+
I loved the math and data behind it and at the end of the data, it’s really not that hard of a strategy to actually implement. The average performance of the stock market in this timeframe is 6.5%. Yeah, I said it – momentum investing works because of bad investors. You see, so many of us have behavioral finance tendencies that keep us from making good investing decisions. At the end of the day, there’s been a lot of very simply Trade Like a Stock Market Wizard Review studies (easy for me to say – maybe I should say easy in concept) that statistically prove that momentum investing works. I wasn’t sold at first, even after reading the chapter, but my summary might help get you more on board if you’re not quite there. When Levy developed momentum investing, he was simply trying to track the “relative strength” of a stock which you likely have referred to as RSI, or Relative Strength Index.
A detailed build up of the evidence for the out performance available from a momentum or trend -following approach. 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. The book provides a unique look at absolute momentum and a absolute/relative momentum strategy that appears quite promising. The author presents an intriguing investment strategy which potentially offers advantages over the traditional 70/30 index fund approach. 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. I don’t know a whole lot about the market effects of circuit breakers and whether or not they actually work to reduce drawdowns.
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However, if you exclude the 2008 crash, dual momentum with a lookback period of 2 month still underperforms a simple buy and hold strategy by around 100 percentage points. Does it make sense to give up so much upside just to protect yourself against a crash? As the results from the author’s back test was so promising, I started doing more research into his methodology.