Bond Dual Momentum

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Bond Dual Momentum

Post by ochotona » Thu Sep 22, 2016 9:58 pm

I almost missed it, but TIPS (SCHP) are now ahead of Aggregate Bonds (SCHZ) and Intermediate US Treasuries (SCHR) on a 1-year momentum basis! Hmmm...
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Re: Bond Dual Momentum

Post by InsuranceGuy » Thu Sep 22, 2016 10:57 pm

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Re: Bond Dual Momentum

Post by ochotona » Sat Sep 24, 2016 6:17 am

Right, it's all confusing out of context. Gary Antonacci 's Dual Momentum book explains how you can use momentum to improve portfolio performance. I am 75% stocks, 25% bonds, gunning for retirement in 9 years. Using absolute monentum to ditch stocks as we enter a bear market lets me carry more stocks than I otherwise would.
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Re: Bond Dual Momentum

Post by InsuranceGuy » Sat Sep 24, 2016 9:14 am

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Re: Bond Dual Momentum

Post by ochotona » Sat Sep 24, 2016 9:21 am

InsuranceGuy wrote:
ochotona wrote:Right, it's all confusing out of context. Gary Antonacci 's Dual Momentum book explains how you can use momentum to improve portfolio performance. I am 75% stocks, 25% bonds, gunning for retirement in 9 years. Using absolute monentum to ditch stocks as we enter a bear market lets me carry more stocks than I otherwise would.
I have a pretty clear understanding of DM, just not what you are doing. A couple questions that would help clarify if you don't mind me asking:

You seem to track many stock and bond funds, do you have a list of all the funds that you track?

Do you only use the top stock and bond fund or do you use the Top 2/3?

What is your out of market asset? Tbills?
I track many funds because I'm "stranded" in my company 401(k) and HSA. They have a variety of funds, but they're not really relevant to others who aren't in my plans. So they don't bear repeating. But it's interesting to watch the horse race.

The vast majority of my GEM Dual Momentum choices are standard per Antonacci.
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Re: Bond Dual Momentum

Post by MachineGhost » Sat Sep 24, 2016 10:37 am

ochotona wrote:Right, it's all confusing out of context. Gary Antonacci 's Dual Momentum book explains how you can use momentum to improve portfolio performance. I am 75% stocks, 25% bonds, gunning for retirement in 9 years. Using absolute monentum to ditch stocks as we enter a bear market lets me carry more stocks than I otherwise would.
So a PP sans cash and gold? Did you find 25% bonds were enough to deal with the peak-to-sell drawdown on 75% stocks? Roughly just based on risk alone, the stocks are 3x higher risk without counting the downside risk management. That means you have to cut off 2x risk to make it still work.
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Re: Bond Dual Momentum

Post by InsuranceGuy » Sat Sep 24, 2016 10:54 am

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Re: Bond Dual Momentum

Post by MachineGhost » Sat Sep 24, 2016 11:02 am

InsuranceGuy wrote:I am interested in knowing more of what you are doing as there aren't a lot of practitioners out using real money doing this that I come across. Plus, I agree that it's very interesting to watch the "horse race" and observe what performs the best and for how long. I'm a little behind you hoping to retire in the ~15 year timeframe.
I thought I'd throw this rock into the puddle... momentum doesn't beat buy and hold once accounting for the increased transactions costs and increased volatility! O0
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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Re: Bond Dual Momentum

Post by ochotona » Sat Sep 24, 2016 2:04 pm

InsuranceGuy wrote:
ochotona wrote:
InsuranceGuy wrote: Well funds aside what asset classes do you consider for your 75% then?
You mention GEM, does that mean you use the top asset class for the whole 75% equities then?
I am interested in knowing more of what you are doing as there aren't a lot of practitioners out using real money doing this that I come across. Plus, I agree that it's very interesting to watch the "horse race" and observe what performs the best and for how long. I'm a little behind you hoping to retire in the ~15 year timeframe.
VOO (US SP500), VEU (all-world ex-US stocks), BND (aggregate bond) are the three ETFs. I'm 75% in VOO at this time, and other things in my 401(k) and HSA.

In the 401(k), I'm in ACLAX, but it will change to MINGX on October 1.

For the HSA, FREAX is still in the lead.
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Re: Bond Dual Momentum

Post by ochotona » Sat Sep 24, 2016 2:09 pm

MachineGhost wrote:
InsuranceGuy wrote:I am interested in knowing more of what you are doing as there aren't a lot of practitioners out using real money doing this that I come across. Plus, I agree that it's very interesting to watch the "horse race" and observe what performs the best and for how long. I'm a little behind you hoping to retire in the ~15 year timeframe.
I thought I'd throw this rock into the puddle... momentum doesn't beat buy and hold once accounting for the increased transactions costs and increased volatility! O0
Again... what transaction costs are you referring to? I trade my ETFs and mutual funds for free. Yes, if you try momentum on individual stocks, you will get creamed by these costs, but trading VOO, VEU, and BND? I don't see it. You keep saying this over and over and over like a broken record, and I just have to keep saying, "you're wrong, you're wrong, you're wrong".

DM can't escape the volatility. But it can escape much of the drawdowns.

If you go to portfoliovisualizer.com, and run the dual momentum backtest with real live OLD mutual funds going back to the 1980s, you will see what it is capable of, if you can stick with it while it is underperforming the S&P500 during bull markets.
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Re: Bond Dual Momentum

Post by InsuranceGuy » Sat Sep 24, 2016 4:41 pm

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Re: Bond Dual Momentum

Post by InsuranceGuy » Sat Sep 24, 2016 4:48 pm

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Re: Bond Dual Momentum

Post by MachineGhost » Sat Sep 24, 2016 5:18 pm

You guys are fun to play with!

There's more to "transaction costs" than just commissions and taxes.

But yeah, they'll be minimal using ETFs vs stocks as long as you keep those costs under control. Easier when you're small fry.

But if you get any great portfolio outperformance using momentum, I guarantee it won't be because of the momentum, it'll be because of hidden factor exposure that you were lucky enough to expose yourself to ahead of time.

No one I know analyzes their portfolio return stream for the factor exposure weightings to see how bad they actively did vs a low-cost passive factor index. It's the three monkeys syndrome!
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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Re: Bond Dual Momentum

Post by InsuranceGuy » Sat Sep 24, 2016 5:41 pm

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Re: Bond Dual Momentum

Post by ochotona » Sat Sep 24, 2016 5:50 pm

MachineGhost wrote:You guys are fun to play with!

There's more to "transaction costs" than just commissions and taxes.
The bid-ask on those three gigantic ETFs is miniscule, if you don't try to trade on a TEOTWAWKI day.

Timing portfolio: Antonacci-style Dual Momentum on Schwab SWPPX (SP500), SWISX (International Equity), and SWLBX (Aggregate Bonds). Note... these are REAL mutual funds. These are not theoretical indices. This backtest goes back to January 1999. The comparisons are SP500, and 1/3-1/3-1/3 fixed portfolio of all three funds, rebalanced annually. portfoliovisualizer.com

So someone tell me what they don't like about this scenario, please. You look once a month. You trade about once a year. Yes, it whipsaws. Yes, it lags bull markets. Yes, it's as volatile as the bare naked SP500 or Intl Equity market, when not in bonds. And If I had had it in 1999, I'd be twice as wealthy.

I feel like I am taking crazy pills when exchanging with MG.

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Re: Bond Dual Momentum

Post by ochotona » Sat Sep 24, 2016 6:02 pm

The Schwab 1000 fund SNXFX goes back a few more years. If you play Absolute Momentum on it, this is what you get from 1994 onward. The CAGR for HBPP for comparison was 6.45%. That's 2.76x the wealth.

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Re: Bond Dual Momentum

Post by MachineGhost » Sat Sep 24, 2016 6:55 pm

Never said I didn't believe in momentum, but I thought we were talking about "horse race" relative strength not absolute. I'm a fan of absolute; not so much of the former. Especially on stocks. Investor's Business Daily has uninspiring performance on its model portfolios.

Backtests are baloney if not done properly as they're oversensitive to the starting dates, the parameter lengths and the exact instrument universe used. I see that PortfolioVisualizer has Monte Carlo available, so run anything proposed through that and calculate the t-test score. They only go back to 1987 unfortunately, but at least you get Black Monday in.

Anyway, the Trinty portfolio from Faber has solved some more thorny issues, so I suggest using that and not Antonacci's or AA's out-dated apporaches. It might be a little too early given his less than stellar track record on his other ETF's but that less than stellar performance is why we now have a Trinity.
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Re: Bond Dual Momentum

Post by InsuranceGuy » Sun Sep 25, 2016 10:12 am

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Re: Bond Dual Momentum

Post by ochotona » Sun Sep 25, 2016 11:24 am

InsuranceGuy wrote:While I agree that absolute makes more sense than relative, I think there is something in putting more weight in asset classes with higher momentum velocity as is done in relative momentum.
Sure, Antonacci dual mometum GEM is placing a 100% bet on any one of three asset classes at a time (and gold ain't one of them)... but, more on relative momentum... I heard Antonacci in person recently, and he said he's abandoned his earlier work showing that rotating between US industry segments using relative momentum is any good. He said that was a curve-fitting mistake to too little data, and now he just favors the three big classes (US equities, ex-US equities, and aggregate bonds) indices, after getting his hands on more data which shows that the advantage was fleeting.

He DOES still do a relative bond rotation strategy, though. He thinks that still works. I use that principle to add and subtract bond classes around my central core of Treasuries, which was the original topic of this thread.

For the curious, here's what I hold in bondland:

CORE:
Actual US Treasury Bonds (mature in 2022)
A synthetic 10-year T-Bond, 70% SCHR ETF + 30% TLO ETF
Aggregate bonds SCHZ
Instead of cash in the brokerage account, Short Term Treasuries SCHO
Cash @ Ally Bank earning 1%
I-Bonds

ADD-ONS:
TIPS SCHP (just added more)
Emerging market sovereign PCY (very little)
International aggregate BNDX
High Yield PHB (currently 0%)
Corporate CORP
Preferred stock PGX
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Re: Bond Dual Momentum

Post by MachineGhost » Sun Sep 25, 2016 11:59 am

Well, at least we know Antonacci isn't a typical old man too stubborn to change his wedded ideals, so that is encouraging. I just read an interview with Bogle about being an investment pioneer and my gawd, the guy hasn't changed his tune in 40 years. What we're doing here he simply doesn't believe in... I don't know if he's so blind he can't literally perceive it as existing or its just not within his dogmatic world view and is biased to support his own personal investment policy, but it is ridiculous some of the statements he throws around that makes my eyes roll in their sockets.

Did Antonacci mean many narrow industry segments or a few broad sectors? Lots of people conflate the two terms. I've had success with horse racing many narrow industry segments (around 15% CAGR since 1990) as well as just using absolute momentum on the few broad sectors (about 2x outperformance vs S&P 500 since 2000). But the former seems rather unstable depending on what happens or does not happen to be in the top x% and universe, so never went live with it.

I think there is a fund somewhere that uses Shiller's P/E and horse race momentum for selecting the broad sectors. I wonder how it has fared?

I don't think horse racing Treasuries vs other bonds makes any sense. All the other bonds have Prosperity risk not Recession risk (or sovereign risk if foreign Treasuries). If you want to beak the PP, then you will wind up with a portfolio of systematic trading strategies and not a PP. They will have different correlations to each other than what the PP relies on. A good example is managed futures.... where the hell does that fit into the PP? Well if you examine closely instead of relying on the superifical analysis that everyone does about it, you'll see the outperformance is coming from the Treasuries during "risk off" periods.
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Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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Re: Bond Dual Momentum

Post by ochotona » Sun Sep 25, 2016 1:26 pm

MachineGhost wrote:Did Antonacci mean many narrow industry segments or a few broad sectors? Lots of people conflate the two terms. I've had success with horse racing many narrow industry segments (around 15% CAGR since 1990) as well as just using absolute momentum on the few broad sectors (about 2x outperformance vs S&P 500 since 2000). But the former seems rather unstable depending on what happens or does not happen to be in the top x% and universe, so never went live with it.
Antonacci was horse racing the US equity segments... healthcare, technology, consumer discretionary, financials, utilities,... That kind of race he has given up on.
MachineGhost wrote: I don't think horse racing Treasuries vs other bonds makes any sense.
Yeah, maybe not. I just ran a DM backtest with VUSTX (LT Treasuries), FGMNX (Ginnie Mae), PHYZX (High Yield), and PFOAX (Foreign bond) from 1998 until now. The CAGR went up from 0.71% but drawdown, Sharpe, Sortino, standard deviation all went bad. Comparison was a buy-and-hold equal weight bond portfolio.
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Re: Bond Dual Momentum

Post by ochotona » Sat Nov 26, 2016 4:52 pm

Well, I am harvesting short-term capital losses in a Muni bond ETF. I have to do it soon, or else I hit my one-year anniversary of my initial buy, and then it would no longer be short-term. :( Sadly but conveniently, I have just about $3,000 in losses I can harvest, so I can use them all for 2016 taxes and not have to carry any forward.

I'm going to turn right around and buy more bonds, but different types, so no wash sale problem.

PHB high yield bond, CORP corporate bond, SCHP U.S. TIPS, and BNDX International bonds.

These show relatively higher 1-year momentum of my list of bond ETFs (Schwab ETF Select List). PCY Emerging Market Sovereign Bond is good also, but I don't want to put 40% of my money into non-US bonds. BNDX is enough for right now, and I will set an ambitiously low target price for that purchase and wait for a nibble. The others I'll just buy at market.
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Re: Bond Dual Momentum

Post by ochotona » Sat Jan 21, 2017 7:03 pm

Bonds Dual Momentum was eluding me, until I realized I was facing two problems.

1. Hinted at by Gary Antonacci in an email, that Dual Momentum does not work that well for volatile assets
2. Paul Novell came out with a tactical bond portfolio using Dual Momentum, but I tried it on PortfolioVisualizer .com, and it flopped. Then I realized... he has some volatile bonds in there (Long Treasuries, Emerging Markets, Junk Bonds, and TIPS). So I pulled those out.

The remaining four - ST US Treas, Inter US Treas, Intl bond (not Emerging Market), and Total Bond work just fine together. The Dual Momentum period is 6 months, you 100% invest in the best of the four. Evaluate once a month.

A nice way to pop out of all bonds if they suck (like NOW... it's all cash now), or keep shorter term, or a bit longer term, or international, or go back to plain old Total Bond if there is no flight to safety going on.

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Re: Bond Dual Momentum

Post by InsuranceGuy » Sun Jan 22, 2017 2:19 pm

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Re: Bond Dual Momentum

Post by ochotona » Mon Jan 23, 2017 6:48 pm

10 month moving average seems to work OK for total bond market mutual funds. They've given up returns in the 35 year bond bull market, but maybe they'll be useful now. Maybe that's good enough... decide whether to go to bonds or cash. I think the rest just might be fluff.
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