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SACEMS with Different Alternatives for “Cash”

| | Posted in: Momentum Investing, Strategic Allocation

Do alternative "Cash" (deemed risk-free) instruments materially affect performance of the "Simple Asset Class ETF Momentum Strategy" (SACEMS)? Changing the proxy for Cash can affect how often the model selects Cash, as well as the return on Cash when selected. To investigate, we test separately each of the following yield and exchange-traded funds (ETF) as the risk-free asset:

3-month Treasury bills (Cash), a proxy for the money market as in base SACEMS
SPDR Bloomberg Barclays 1-3 Month T-Bill (BIL)
iShares 1-3 Year Treasury Bond (SHY)
iShares 7-10 Year Treasury Bond (IEF)
iShares TIPS Bond (TIP)

We focus on compound annual growth rate (CAGR) and maximum drawdown (MaxDD) as key performance metrics and consider Top 1, equally weighted (EW) EW Top 2 and EW Top 3 SACEMS portfolios. Using end-of-month total (dividend-adjusted) returns for the specified assets during February 2006 (except May 2007 for BIL) through June 2020, we find that:

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