IFT Dual Momentum Strategy
This free strategy is our variation of Gary Antonacci’s Dual Momentum Strategy with a couple slight modifications.
The momentum strategy invests either in the S&P® 500 index or the EAFE index of large and mid-cap companies in developed countries, depending on which index is stronger.
Portfolio holdings are moved to the safety of government bonds when performance of U.S or foreign markets turns down and are outperformed by short-term government bonds.
The chart below is the back-tested performance of the Dual Momentum Strategy since 1994 (approx 25 years) compared to the Vanguard Balanced Fund (VBINX) which holds 60% stocks and 40% bonds.
How does the strategy work?
The IFT Dual Momentum strategy is designed to hold US stocks (SPY) or foreign stocks (EFA) when their past performance is stronger than short-term government bonds.
The strategy rules are checked on a monthly basis, at the end of each month. Based on rules, if a change in holdings is needed, it is made at the end of the month.
The strategy holds the stronger performing stock index (SPY or EFA) when the ten-month performance of SPY outperforms the ten-month performance of a short-term government bond index (BIL).
During times of weak stock market performance , the model switches holdings to U.S. investment-grade bonds.
| Asset class | Strategy holding | Description |
|---|---|---|
| US Stocks | SPY | S&P 500 large-cap U.S. Stocks |
| Developed Foreign Markets | EFA | MCSI EAFE (Europe, Australasia and Far East) Developed Markets index. |
| US investment-grade bonds | AGG | Bloomberg US Aggregate Bond Index |
Strategy Metrics
| Metric | Strategy | Balanced portfolio |
|---|---|---|
| Annual Return (20 years) | 8.4% | 6.7% |
| Sharpe Ratio (20 years) | 0.60 | 0.68 |
| Max Drawdown | -22.8% | -32.6% |
| Drawdown Start / End dates | December 2021 to June 2024 | October 2007 to December 2010 |
| Max Drawdown length | 30 months | 38 months |