Review of Dual Momentum with Just Three Assets

A subscriber requested 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:

1. Each month, calculate for each of the two equity assets the sum of its 1-month, 3-month and 6-month past returns.
2. If both sums are negative, buy U.S. Treasury bonds.
3. 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 October 2024, we find that: