### Simple Asset Class ETF Momentum Strategy Universe Sensitivity

**May 13, 2014** - Momentum Investing, Strategic Allocation

How sensitive is the performance of the “Simple Asset Class ETF Momentum Strategy” to exclusion of each asset in the base set? To investigate empirically, we exclude each of the following exchange-traded funds (ETF) or notes (ETN) one at a time from strategy performance calculations:

PowerShares DB Commodity Index Tracking (DBC)

iShares MSCI Emerging Markets Index (EEM)

iShares MSCI EAFE Index (EFA)

SPDR Gold Shares (GLD)

iShares Russell 1000 Index (IWB)

iShares Russell 2000 Index (IWM)

SPDR Dow Jones REIT (RWR)

iShares Barclays 20+ Year Treasury Bond (TLT)

3-month Treasury bills (Cash)

We focus on monthly net return-risk ratio (average monthly return divided by standard deviation of monthly returns) as a key strategy performance metric. We calculate the return-risk ratio nine times, each time excluding from consideration one of above nine assets. We then relate the nine return-risk ratios to four characteristics of the respectively excluded assets: (1) average monthly return; (2) standard deviation of monthly returns; (3) average (pairwise) cross-correlation of monthly returns with the other eight assets; and, (4) serial correlation of monthly returns. The objective is to determine whether any of these four characteristics explain asset contribution to the momentum strategy. Using dividend-adjusted monthly returns for the above nine asset class proxies as available during January 2003 through April 2014 (a maximum of 135 monthly returns), *we find that:* Keep Reading