SACEMS Optimal Lookback Interval Stability

A subscriber asked about the stability of the momentum measurement (lookback) interval used for strategies like the Simple Asset Class ETF Momentum Strategy (SACEMS). To investigate, we run two tests on each of top one (Top 1),  equal-weighted top two (EW Top 2) and equal-weighted top three (EW Top 3) versions of SACEMS:

1. Identify the SACEMS lookback interval with the highest gross compound annual growth rate (CAGR) for a sample starting February 2006 when Invesco DB Commodity Index Tracking Fund (DBC) becomes available and ending each of May 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022 and 2023. We consider lookback intervals of one to 12 months, meaning that earliest allocations are for February 2007 to accommodate the longest interval. The shortest sample period is therefore 5.3 years. This test takes the perspective of an investor who devises SACEMS in May 2012 and each year adds 12 months of data and checks whether the optimal lookback interval has changed.
2. Identify the SACEMS lookback interval with the highest gross CAGR for a sample ending May 2021 and starting each of February 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017 and 2018. The shortest sample period is again 5.3 years. This test takes perspectives of different investors who devise SACEMS at the end of February in different years.

Using monthly SACEMS inputs and the SACEMS model as currently specified for February 2006 through May 2023, we find that: (more…)