Dual Momentum Model
Dual Momentum is an investing model made popular by Gary Antonacci in his book by the same name. The look-back period is one year and 100% of the portfolio is always invested in one security. In the following example four ETFs are used with SHY the cutoff or circuit breaker ticker. If the portfolio were updated today, 100% of the account would be invested in VTI. See the following explanation as to why it is not TLT.
Dual Momentum Recommendation: In this example I provide both BIV and TLT as alternates to investing in either VTI or VEU. The Dual Momentum Model goes as follows.
- Rank VTI and VEU and compare both with a cutoff ETF. If TLT were out of the picture in the following ranking, VTI is next in line so 100% of the portfolio would go to U.S. Equities (VTI).
- If both VTI and VEU rank higher than SHY, move 100% of the portfolio to the higher ranked ETF.
- If neither VTI or VEU rank above SHY, move 100% of the portfolio to bonds (BIV or TLT).
Look at the current rankings. VTI is second to TLT and it ranks higher than SHY, the cutoff ETF. Therefore, a strict Dual Momentum investor would now be 100% invested in U.S. Equities (VTI).
Tranche Momentum Model
Tranche Momentum Recommendations: Tranche momentum recommendations vary considerably from the Dual Momentum recommendation. In the following model two look-back periods are weighted and volatility is part of the calculation. VEU is the highest ranked ETF when the look-back periods are changed. The portfolio is spread out across all ETFs with exception of BIV.
If one were following the Tranche Momentum Model, a followup analysis would include the Position Sizing (PS) worksheet. I did not include the PS worksheet in this blog, but it will be shown in portfolio reviews next week.