Content
It will forever change the way you think about developing investment and asset allocation strategies. Gary Antonacci takes us on a comprehensive tour of investment methods, exploring their strengths and weaknesses, and lays out a strong case for combining DowMarkets Forex Broker absolute and relative momentum. I consider Dual Momentum Investing an essential reference for system designers, money managers, and investors. He is widely recognized as a foremost authority on the practical applications of momentum investing.
As usual though, the book is a bit of a tease – introduces the concept and gives a simple example to follow, and then the usual “at my firm we have a more complex model that we feel does better, etc etc etc”. I just would have liked a slightly more complex model / approach for my investing style.
To see how the portfolio performs in real-time and the real world, check out all the blog posts tagged with Dual Momentum Strategy category . However, I also like to run my own backtest to see how things do when compared to a traditional 60/40 portfolio. There are lots of research and backtest results available in the book and online.
Related To Dual Momentum Investing
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From picking a cost-effective brokerage firm, to making asset choices, to customizing your strategy as you near retirement–this reliable guide helps you do it all with the confidence you’ll gain through repeated success. This dual momentum investing is a simple strategy but very solid in implementation. Since I read a couple of other books on momentum, the strategy in its core looked quite similar to others. Each author that I read had his own way of calculating relative momentum and having a filter criteria which some defined as a Moving Average or in this case absolute momentum. In the late 2000s, as computer and networking speeds increase each year, there were many sub-variants of momentum investing being deployed in the markets by computer driven models. The strategy takes exception with the old stock market adage of buying low and selling high.
What we need now is a new paradigm that dynamically adjusts to market risk and keeps us safe from the vagaries of today’s highly volatile markets. We need a way to earn long-term above-market returns while limiting our downside exposure.
A detailed build up of the evidence for the out performance available from a momentum or trend -following approach. I’m reading this book because Dad highly recommended it, I’m reading about investing right now, and I’d like to learn anything I can that I can apply to my systems.
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. Dual Momentum Investing details the author’s own momentum investing method that combines U.S. stock, world stock, and aggregate bond indices–in a formula proven to dramatically increase profits while lowering risk. For example, in 2009, momentum experienced a crash of -73.42% in three months.
The strategy was also a lot less risky compared to investing in the index as its maximum drawdown was only 22.7% compared to 60.21% of the ACWI Index and a return standard deviation of 12.64% (ACWI Index 15.56%). In the book Gary says the best approach to investing is for you to use absolute and relative momentum together so that you make use of the advantages of both. 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.
This downside risk of momentum can be reduced with a so called ‘residual momentum’ strategy in which only the stock specific part of momentum is used. Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment.
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This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, securities trading, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Few authors can review the breadth of competing investment theories and practices in such an accessible manner. Just what is the methodology and how do we replicate it in practice?
- These awards are given annually by the National Association of Active Investment Managers.
- The strategy is simple, the author has chosen two indexes, an U.S. and all-world except the U.S., and switches between them if they are above the value of the treasury bills depending on returns in the last twelve months.
- His research introduced the investment world to dual momentum, which combines relative strength price momentum with trend following absolute momentum.
- As you can see over the 39 year period this strategy returned an average of 17.43% per year compared to the 8.85% of the ACWI Index over the same period.
- When comparing the equity ETFs returns to t-bills, an ETF to use is BIL.
- In the description above, I referred to the long side only, but of course, Dual Momentum could be applied to the short side in the same way.
Repeat steps 1 – 3 at the end of each month and replace one of the three ETFs with the strongest performing asset. Three of them are meant for investment, and the other is meant for comparison only. For aggregate bonds, the easiest choice is BND or the Vanguard Total Bond Market ETF. The fund provides cheap exposure to U.S. investment grade bonds. The next month you run the process again, and if the strongest market has changed you change things up. 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.
We are solely an informational site identifying strategy trade signals using automated algorithmic market analysis tools on a limited set of funds. If you are unable or unwilling to fully read and agree with our Terms of Use and Disclaimer, we ask that you exit this site immediately. Your continued use of this site and/or associated media shall be considered equivalent to your signature as evidence of your trading strategy acceptance of our Terms of Use and Disclaimer. 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”. The previous 12-month returns tell you which equity market is the strongest, and if that equity market has performed better than t-bills, you buy it and hold it for a month.
Strategy Rules
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. While no consensus exists about the validity of this strategy, economists have trouble reconciling this phenomenon with the efficient-market hypothesis. Two main hypotheses have been submitted to explain the effect in terms of an efficient market. In the first, it is assumed that momentum investors bear significant risk for assuming this strategy, and, therefore, the high returns are a compensation for the risk.
He writes and runs the popular blog and website optimalmomentum.com. “Dual Momentum Investing” details the author’s own momentum investing method that combines U.S. stock, world stock, and aggregate bond indices–a formula proven to dramatically increase profits while lowering risk. Absolute momentum compares the return of an asset to its own performance.
In his backtests back to 1974, he found that sector rotation outperformed the S&P500, but underperformed his GEM model. If you look at Gary’s resultshere, you can see that sector rotation outperformed GEM only intermittently , with GEM coming out well on top over time. However, the sector rotation Gary describes on his websitehereis, I think, very different to my implementation in that it examines the individual sectors of the US market only. My implementation is more of a “global macro sector rotation”.
In his book Gary used 12 months, which is also the best look back period found in the above research paper. However, if you are a more risk adverse you can use periods of three, six or nine months. First you need to decide over what past period you are going to look at to determine if the absolute momentum is positive.
Antonacci’s Dual Momentum
I would say that the average investor would get much better investment returns by switching to the GEM strategy. However, if everybody did switch it would destabilize the financial markets – but this is clearly true of any investment strategy. The fact that I finished it despite reading two other books on momentum investing means that the author kept me entertained.
A number of people have tried to improve on the research and developed alternative systems. You can even get the results https://aysamturizm.com.tr/how-to-use-adx-indicator/ from Antonacci himself on this page. Here is the most recent performance graph at the time of this writing.
Dual Momentum Investing: An Innovative Strategy For Higher Returns With Lower Risk
Turnover tend to be high for momentum strategies, which could reduce the net returns of a momentum strategy. Some even claim that transaction costs wipe out momentum profits. In their 2014 study ‘fact, fiction, and momentum investing’ Cliff Asness and his co-authors address 10 issues with regards to momentum investing, including transaction costs. Seasonal or calendar effects may help to explain some of the reason for success in the momentum investing strategy. If a stock has performed poorly for months leading up to the end of the year, investors may decide to sell their holdings for tax purposes causing for example the January effect. Increased supply of shares in the market drive its price down, causing others to sell.