Momentum Strategy

As elaborated in "What Works Best?", a strategic allocation involving perhaps five to ten equally weighted asset classes available via low-fee exchange-traded funds (ETF) or mutual funds, with periodic rebalancing, is a simple way for individual investors to harvest uncorrelated volatility over the long term. For investors seeking an active (tactical) edge, there is evidence supporting exploitation of intermediate-term momentum of these asset class proxies. Holding a few top-performing funds (rather than just the top fund) combines continuous diversification and momentum.

For the set of strategies described here, we allocate at the end of each month all funds to the top one (Top 1), the equally weighted top two (EW Top 2) or the equally weighted top three (EW Top 3) asset class ETFs from a set of nine, based on total return over the past five months.

Supporting research includes (items may at times be unavailable for a few days during updates):

Some investors may want to follow one of the strategy alternatives tracked here. Others may want to adapt them with modifications suited to their individual goals and constraints. Still others may want to apply the analysis approaches to stress other strategies. Something to keep in mind is that adding complexity to the strategy, refining variables or parameters, increases the number of ways to optimize and thereby elevates potential for snooping bias.

Cumulative Performance

The following chart shows the gross cumulative values of $100,000 initial investments in Top 1, EW Top 2 and EW Top 3 portfolios since the end of August 2006 (when all ETFs considered are first available). The chart includes two benchmarks: buying and holding SPDR S&P 500 (SPY); and, an equally weighted, monthly rebalanced portfolio of all ETFs considered (EW All), indicative of simple diversification benefits.  It includes as an alternative benchmark SPY:SMA10, a simple timing strategy that holds SPY (Cash) when the S&P 500 Index is above (below) its 10-month simple moving average.


Momentum Signal for October 2015 (Final)

Winner ETF

Second Place ETF

Third Place ETF

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Current Momentum Winners

ETF Momentum Signal
for October 2015 (Final)

Winner ETF

Second Place ETF

Third Place ETF

Gross Compound Annual Growth Rates
(Since August 2006)
Top 1 ETF Top 2 ETFs
12.3% 12.6%
Top 3 ETFs SPY
12.7% 6.5%
Strategy Overview
Current Value Allocations

ETF Value Signal
for October 2015 (Final)





The asset with the highest allocation is the holding of the Best Value strategy.
Gross Compound Annual Growth Rates
(Since September 2002)
Best Value Weighted 60-40
12.1% 9.6% 7.6%
Strategy Overview
Recent Research
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