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Simple Debt Class Mutual Fund Momentum Strategy

June 11, 2024 • Posted in Bonds, Momentum Investing

A subscriber requested validation of the performance of a simple momentum strategy that each month selects the best performing debt mutual fund based on total return over the past three months. To investigate, we test a simple strategy on the following 14 mutual funds, most of which have long histories:

T. Rowe Price New Income (PRCIX)
Thrivent Income A (LUBIX)
Vanguard GNMA Securities (VFIIX)
T. Rowe Price High-Yield Bonds (PRHYX)
T. Rowe Price Tax-Free High Yield Bonds (PRFHX)
Vanguard Long-Term Treasury Bonds (VUSTX)
T. Rowe Price International Bonds (RPIBX)
Fidelity Convertible Securities (FCVSX)
PIMCO Short-Term A (PSHAX)
Fidelity New Markets Income (FNMIX)
Eaton Vance Government Obligations C (ECGOX)
Franklin Floating Rate Daily Access A (FAFRX)
Vanguard Total Bond Market Index Adm (VBTLX)
Principal Spectrum Pref&Cptl Scs IncA (PPSAX)

We consider a strategy that allocates funds at the end of each month based on total returns over a specified ranking (lookback) interval to the Top 1, equal-weighted (EW) Top 2, EW Top 3, EW Top 4 or EW Top 5 funds. We determine the first winners in November 1988 so that at least nine funds are available for lookback interval sensitivity testing. As a benchmark, we use the equal-weighted and monthly rebalanced combination of all available funds (EW All). Using monthly dividend-adjusted closing prices for the 14 mutual funds from inceptions through April 2024, we find that: (more…)

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