Testing Dual Momentum with AllocateSmartly

I am frequently asked about performance and backtest results for my Dual Momentum portfolio, which is inspired by Gary Antonnaci at Optimal Momentum.

I recently began using AllocateSmartly to test some of my favorite tactical strategies, including Dual Momentum.  AllocateSmartly tracks some of the most popular tactical asset allocation strategies, with thorough, up-to-date backtests, and users can combine the strategies to create and test their own custom model portfolio.

The first Dual Momentum strategy is very similar to the strategy I update monthly on Scott’s Investments.

The strategy divides the portfolio into four “modules”, each targeted to a different component of financial markets: equities, credit risk, real estate, and stress. From each module, the strategy selects either one of two related asset classes, or cash. The four modules and their associated assets are as follows:

  • Equities: US equities (SPY) or international equities (EFA)
  • Credit risk: US corporate bonds (LQD) or US high yield bonds (HYG)
  • Real estate: equity REITs (VNQ) or mortgage REITs (REM)
  • Economic stress: gold (GLD) or long-term US Treasuries (TLT)

The test below trades on the last trading day of each month.  You will note the backtest extends further than the launch date for any of the ETFs. In order to extend the backtests as far into the past as possible, AllocateSmartly  often makes use of simulated data from an alternative sources. For example, an alternative data source for SPY could be the Vanguard S&P 500 mutual fund (VFINX).


The second dual momentum strategy is the GEM strategy from Antonacci’s book Dual Momentum Investing.

The strategy rules tested are below:

  • At the close on the last trading day of the month, measure the 12-month return of SPY, EFA (international equities) and BIL (short-term Treasuries).
  • If the return of SPY is greater than BIL (absolute momentum), go 100% long either SPY or EFA, depending on which has the highest return (relative momentum).
  • If the return of SPY is less than BIL, go 100% long  AGG (US aggregate bonds).
  • Positions are held until the last trading day of the following month.

The time frame for this test is much longer than the first test, 1971 – present:


Backtest data courtesy of AllocateSmartly – if you are interested in receiving monthly updates for this strategy or many other tactical strategies give them a try!

Dual Momentum May Update

Stay tuned for an updated Dual Momentum backtest using Allocate Smartly 

Scott’s Investments provides a free “Dual ETF Momentum” spreadsheet which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum.  Antonacci’s book, Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk, also details Dual Momentum as a total portfolio strategy.

My Dual ETF Momentum spreadsheet is available here and the objective is to track four pairs of ETFs and provide an “Invested” signal for the ETF in each pair with the highest relative momentum. Invested signals also require positive absolute momentum, hence the term “Dual Momentum”.

Relative momentum is gauged by the 12 month total returns of each ETF. The 12 month total returns of each ETF is also compared to a short-term Treasury ETF (a “cash” filter) in the form of iShares Barclays 1-3 Treasury Bond ETF (SHY). In order to have an “Invested” signal the ETF with the highest relative strength must also have 12-month total returns greater than the 12-month total returns of SHY. This is the absolute momentum filter which is detailed in depth by Antonacci, and has historically helped increase risk-adjusted returns.

An “average” return signal for each ETF is also available on the spreadsheet. The concept is the same as the 12-month relative momentum. However, the “average” return signal uses the average of the past 3, 6, and 12 (“3/6/12″) month total returns for each ETF. The “invested” signal is based on the ETF with the highest relative momentum for the past 3, 6 and 12 months. The ETF with the highest average relative strength must also have an average 3/6/12 total returns greater than the 3/6/12 total returns of the cash ETF.

Portfolio123 was used to test a similar strategy using the same portfolios and combined momentum score (“3/6/12″).  The test results were posted here.

Below are the four portfolios along with current signals:

Return Data Provided by Quandl

The Dual ETF Momentum spreadsheet also has four additional sheets using a dual momentum strategy with broker specific commission-free ETFs for TD Ameritrade, Charles Schwab, Fidelity, and Vanguard. It is important to note that each broker may have additional trade restrictions and the terms of their commission-free ETFs could change in the future.

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