Antonacci Dual Momentum or M. Faber Ivy Portfolio... about the same?

[ochotona]

Ah, well, I think only having one module lit up at a time isn't going to work very well as DecisionMoose's sore history shows, although I love the ideal but it just hasn't worked out in backesting without a lot of risk.  Momentum always increases risk, never reduces it.

The other problem is not having perpetual Treasury exposure leaves that spot from a peak to the exit signal completely unhedged.  That's a negative drag that the PP doesn't don't have.

Apparantely, I don't understand Antonacci's Dual Momentum at all if he's using two securities.  I thought it was about measuring momentum two different ways.  But I like the idea of whats called rotation among the best securities in any given asset class.  It just adds a layer of complexity to the PP and then there is the problem of deciding which of the various momentum ranking metrics works best historically.

I've got about 20% of my assets in cash and US Treasuries at present. No plans to change, except buying physical gold on dips. So if I run dual momentum to screen and turn on/off the global equity opportunity set for the other 80%, I think I'll be OK. If you look at OptimalMomentum.com, Antonacci publishes the yearly performance for the GEM portfolio, a ballsy hop from US stocks to International Stocks to Bonds, only one thing at a time, and it's not any more volatile in standard deviation terms than a passive 80/20, and many fewer negative years. And the performance is huge, and he's just using three indices. What if you constantly look for best-in-class assets every month? There's a lot of potential, if you don't make stupid choices, like put it all in a small tiny illiquid markets, like a Cocoa ETF, a Carbon ETF (WTF!?!) or Japan Small Cap Healthcare ETF, which are all really hot now.

Yes, it's confusing, dual momentum does refer to two uses of momentum; to rank and to turn off and on. The fact that he had contests in modules pairing up "two" things against each other made me wonder at first if that's what he meant by "dual". But, no. That would be silly, actually. I think he just did it to make a point, and stop and not give away the really good recipe for Pad Panang or Tiger Cried.

I am posting 200 day MA in my screener, and I notice that many ETFs which are a "GO" from a 1-year performance basis are below the 200-day MA. We'd expect this because 200-day MA acts faster than 1-year performance, but it is sobering to see it on live data after the late August debacle. I'm not sure what to do about 200 day MA. It is extra protection against bear markets, or a bothersome PITA that keeps you from good oppurtunities? I have some time before I plan to go live with Faber or Antonacci, I will think about it more over the holidays after Santa brings the Dual Momentum book. My 401(k) can't rollover until February 2016, so not in a hurry.

[MachineGhost]

Yes, it's confusing, but dual momentum does refer to two uses of momentum; to rank and to turn off and on. The fact that he had contests in modules pairing up "two" things against each other made me wonder at first if that's what he meant by "dual". But, no. That would be silly, actually. I think he just did it to make a point, and stop and not give away the really good recipe for Pad Panang or Tiger Cried.

Oh okay, then I was thinking of triple momentum: relative strength, relative (vs T-Bills), absolute (vs MA).

GEM is the longest asset rotation backtest I've ever seen.  Are the rules for GEM available anywhere besides the pricey book?

Notice the consistent underperformance of GEM since 2009.  I get the feeling that despite the rally in U.S. stocks since then, some other asset subclass has been mostly overlooked in illustrative portfolios.

I am posting 200 day MA in my screener, and I notice that many ETFs which are a "GO" from a 1-year performance basis are below the 200-day MA. We'd expect this because 200-day MA acts faster than 1-year performance, but it is sobering to see it on live data after the late August debacle. I'm not sure what to do about 200 day MA. It is extra protection against bear markets, or a bothersome PITA that keeps you from good oppurtunities? I have some time before I plan to go live with Faber or Antonacci, I will think about it more over the holidays after Santa brings the Dual Momentum book. My 401(k) can't rollover until February 2016, so not in a hurry.

Absolute (vs MA) is better than Relative (vs T-Bills) in my backtesting, but I think robustness is preferable over greed.  It's also mentally easier to only put 50% in on a signal instead of 100%.

I actually have a variety of different momentum measurements and rankings for all stocks and some categories on my beta web site, but I can't be bothered to fix that right now.  Have other fires to put out first.

With what I use for general market timing nowadays (trend + volatility), only COMP and DIA have confirmed their uptrends (and last week).  SPX and R2K are still lagging as are most of the broad sectors.  Until I see broad participation, this is a dead cat bounce.  OTOH, we could easily do 1998 to 2000 again where MegaCap got all the attention to the detriment of everything else due to a stronger dollar and higher relative interest rates.  We're already in second place historically for valuation extremes, not yet surpassing 2000.  Bubblicious!

I couldn't invest in this crazy market without some kind of downside protection.  No ifs ands or buts.  Its stressful compared to a lazy portfolio but not as much as large MaxDD's that could have been prevented by not being lazy.

[MachineGhost]

To which I say... why not just use TMOM in all cases, except EAFE? Isn't that simpler than trying to engineer a kluge?

Robustness.  Nothing works all the time.  It's not that big of a deal to use two slightly different signals.  If there were a significant difference between Absolute and Trending instead of marginal, I'd say you have a case.

I swear Gray and company keep changing their labels.

So essentially their "Robust Asset Allocation" aka "Downside Protection" is a synthesis of Antonacci's absolute momentum (relative to T-Bills), Faber's absolute momentum (relative to MA), using Faber's dumb strategic asset classes and weightings, but without using Antonacci's relative strength rotation.  I trust I have it all clear by now.  Let's call all three the Triple Momentum Enchilada!

[ochotona]

By the way, pretty much nothing in the way of risk assets is above the 10 month moving average now. If things don't get better fast, this is going to be a

[align=center] CASHY NEW YEAR!  [/align]

[ochotona]

The problem with computing the trailing one year performance (TMOM) is that a spike up or down a year ago skews your results today, and it could be just market noise, like ISIS blows up a puppy farm or mows down a Quaker Meeting. Seems to me that a moving average smears away all of the noise.

Here's a simple way to get very close to a ten calendar month moving average of adjusted closes without having to download data and average it. Compute the 210 day moving average, which you can do on any chart. Subtract 1.3x the quarterly dvidend. For the SP500 recently, it's very close. Or, for government accuracy, just subtract 1x the quarterly dividend.

[ochotona]

Time-Series Momentum versus Moving Average Trading Rules


Ben R. Marshall
Massey University - School of Economics and Finance

Nhut H. Nguyen
Massey University

Nuttawat Visaltanachoti
Massey University - Department of Economics and Finance

December 22, 2014


Abstract:     
Time-series momentum (TSMOM) and moving average (MA) trading rules are closely related; however there are important differences. TSMOM signals occur at points that coincide with a MA direction change, whereas MA buy (sell) signals only require price to move above (below) a MA. Our empirical results show MA rules frequently give earlier signals leading to meaningful return gains. Both rules perform best outside of large stock series which may explain the puzzle of their popularity with investors yet lack of supportive evidence in academic studies.

Number of Pages in PDF File: 45

Keywords: G11, G12

JEL Classification: Technical analysis, time-series momentum, moving average, return predictability

[ochotona]

The Dual Momentum book is nice; nothing new from a content point of view, but good to have it in one place, in hardcopy.

Takeways:

The difference between 10 month moving average and 12 month total return as absolute momentum risk controllers are small. Not worth worrying about. Go with the easier, lazier measure... 12 month total return.

The Global Equities Momentum (GEM) portfolio is very cool - high return, high Sharpe (0.87), moderate MaxDD. Three components: VTI, VEU, BND (for me, SCHB,SCHF, SCHZ). You just rotate between the three.

You can do great with less risk if you have 30% in bonds and use Dual Momentum to rotate between 10-year Treasuries, High Yield, Corporate bonds, and Cash, this he calls Globally Balanced Momentum (GBM). The Sharpe is even higher at 0.98.

Finally, using single Absolute Momentum only to rotate in-and-out of an equally weighted US Stocks, Intl Stocks, Gold, 10-y Treasuries, Corporate bonds he gets returns which are similar to those when Meb Faber applied to 10 month moving average risk control to the Permanent Portfolio. This he calls the Parity Portfolio. Lowest MaxDD and highest Sharpe (1.06) of all three portfolios, I think this would be awesome for a retiree. They would end up being a very rich, comfortable retiree relative to the static 40/60 allocation.

Dual Momentum by Gary Antonacci. Get it, Read it. Place it in your library next to that other ground-breaking work, the Permanent Portfolio by Rowland and Lawson.

[ochotona]

The GEM portfolio end-of-month signal was to exit US equities today, and WHAM! Luckily, I was 83% cash and bonds already. Put in stop-limit sell orders for tomorrow for my remaining piece.

Faber points out that the 10 month moving average is also flashing bearish.

CASHY NEW YEAR!

[ochotona]

Thanks to Tyler for a Pixel chart of the GEM portfolio. This one totally kicks the PP to the curb as far as growth is concerned. You can quiet it down a lot more by adding gold, cash, and Treasuries.

[Tyler]

Lots of greeeeeen!

That said, one should be aware that once you account for trading fees and taxes for any momentum-based portfolio, the end result you see in your bank account may look a lot different than the one on the chart.  Be smart about it. 

[ochotona]

Yes, I trade commission-free ETFs in an IRA. Costs are low, taxes not an issue. On average, this portfolio reportedly trades less than once a year, but we just had a whipsaw, out on Sep 1, in on Nov 1, out again on Jan 1. I hope we're done whipsawing for now. This market has been trying to figure things out.

[lordmetroid]

I check my balance every day, usually more than once a day. I did this when I had the pemanent portfolio as well which is why such a passive investment scheme isn't suitable for me.

After the recent small downturn in mid December, I had my gains from the late November almost disappear because I didn't exit in time. So I decided to be even more active in my investments.
I now trade my fund on a daily basis. If the fund is worth below it's SMA( 8 ) I sell and cash out my gains. Then I wait until the trend reverses again. Considering I am trading using the 1 year % best fund, I am always betting with the trend.

So far so good, I ended up 2% positive for 2015 even though I had a Permanent portfolio  for most of the year which lost me 5% before I decided to switch strategy.
Taxes and fees are a non issue for me. I get taxed 0,42% of the total assets in my trading account for the year(the rate is decided once a year based on the Swedish state lending rates) and my broker do not have any fees for selling and buying mutual funds.


@Tyler thanks for the chart. Didn't see it being posted anywhere else but that is an awesome chart.

[ochotona]

He took the raw time series and processed it into a chart, that's just magic.

[ochotona]

The GEM portfolio doesn't really have a place for gold, as it rotates between US equities, ex-US equities, and Total Bond Market. But I wonder if it wouldn't be a good idea to throw it into the rotation, and if gold pops up as the top performer, at least let it have a 25% maximum allocation, and let the other 75% be dictated by the conventional GEM model. And since this is a trading system, it should be gold ETF based. You might have to get rid of it quickly, without frictional losses.

[ochotona]

Proprietary "Enhanced GEM" Dual Momentum Portfolio by Gary Antonacci.

I also took a close look at the Mebane Faber IVY-5 inspired portfolios offered by the AlphaArchitects. I even spent a long time on the phone today with someone in the C-suite there. But, they don't come close to E-GEM for what I want to do over the next decade. They do have a nice, low-cost tactical robo advisor, with different levels of risk offered, so that could be a good option for retirement, but a $50,000 minimum.

[MachineGhost]

I also took a close look at the Mebane Faber IVY-5 inspired portfolios offered by the AlphaArchitects. I even spent a long time on the phone today with someone in the C-suite there. But, they don't come close to E-GEM for what I want to do over the next decade. They do have a nice, low-cost tactical robo advisor, with different levels of risk offered, so that could be a good option for retirement, but a $50,000 minimum.

AA sucks.  They clearly don't understand the concept of correlated risk parity, but they had to differentiate themselves.

[ochotona]

I also took a close look at the Mebane Faber IVY-5 inspired portfolios offered by the AlphaArchitects. I even spent a long time on the phone today with someone in the C-suite there. But, they don't come close to E-GEM for what I want to do over the next decade. They do have a nice, low-cost tactical robo advisor, with different levels of risk offered, so that could be a good option for retirement, but a $50,000 minimum.

AA sucks.  They clearly don't understand the concept of correlated risk parity, but they had to differentiate themselves.

It's clear AA wanted to springboard lightly off of Meb Faber's IVY-5, but not land too far away. They want to land near the anchored concept in people's mind of "diversification". They think that doing so will give them a more sellable product. I think it's the right commercial decision, but not the very optimum investment decision. But it's not a wrong approach... what they do is transparent. I am sure they will do much better than 60/40 in the next bear market. I hope they get a lot of business.

But you end up with lots of cash drag, like the PP, or even worse at times.