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Very Simple Asset Class ETF Momentum Strategy (VSACEMS)

Steve LeCompte | | Posted in: Strategic Allocation

Guide Trend Following and Momentum Asset class and ETF momentum

Key Insight

VSACEMS Top 1 (monthly hold of the SPY/TLT/LQD ETF with highest trailing total return) is somewhat attractive but not preferable to SPY:SMA10 TLT (SPY above its 10-month SMA, else TLT); gross, July 2003–May 2023, lookback snooping-biased.

A subscriber requested evaluation of a streamlined version of the Simple Asset Class ETF Momentum Strategy (SACEMS) that considers only three exchange-traded funds (ETF):

To evaluate, we test a strategy that each month picks the one of these ETFs with the highest total return over a set momentum ranking (lookback) interval. We call the strategy Very Simple SACEMS (VSACEMS) Top 1. We consider lookback intervals of one to 12 months. We then select one of these lookback intervals and generate performance statistics similar to those for SACEMS. We consider three benchmarks:

  1. SPY - buy and hold SPY.
  2. SPY:SMA10 Cash - Hold SPY (3-month U.S. Treasury bills) when SPY is above (below) its 10-month simple moving average (SMA10) at the end of the prior month.
  3. SPY:SMA10 TLT - Hold SPY (TLT) when SPY is above (below) its SMA10 at the end of the prior month.

Using monthly dividend-adjusted prices for the above three assets during July 2002 (limited by TLT and LQD) through May 2023, we find that:

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Trend Following and Momentum guide

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