Review of Dual Momentum with Just Three Assets
May 26, 2022 - Strategic Allocation
A subscriber suggested review of “Accelerating Dual Momentum [ADM] Investing”, which allocates all funds to U.S. stocks, international (ex-U.S.) small-capitalization stocks or long-term U.S. Treasury bonds, as follows:
- Each month, calculate for each of the two equity assets the sum of its 1-month, 3-month and 6-month past returns.
- If both sums are negative, buy U.S. Treasury bonds.
- If both sums are not negative, buy the equity asset with the higher sum.
To investigate, we apply these rules to three exchange-traded funds (ETF):
- SPDR S&P 500 (SPY) to represent U.S. stocks.
- iShares MSCI EAFE Small-Cap ETF (SCZ) to represent international small stocks.
- iShares 20+ Year Treasury Bond (TLT) to represent long-term U.S. Treasury bonds.
Using end-of-month dividend-adjusted prices of these ETFs during December 2007 (limited by SCZ) through April 2022, we find that: Keep Reading