Hippos taking a bath
The Kahneman-Tversky is a Dual Momentum (DM) portfolio that is split into two portions – one using a long look-back (slow) period and one using a shorter term (fast) look-back periods to measure momentum. Performance over the past 16 months looks like this:
and is underperforming the benchmark AOR fund as a result of using TSLOs in 2020. So, it’s not that the DM system isn’t working – just that it may be better to allow the momentum filtering to determine portfolio holdings rather than to actively try to manage losses by using stop-loss orders. Note that, although there have been deviations in performance as a result of the different look-back periods, the 16 month returns are essentially the same at this point.
The rotation graphs show the differences resulting from the different look-back periods. For the long-term (Kahneman) portion of the portfolio:
…. relatively separated and smooth. Whilst the faster (Tversky) portion looks like this:
where we are seeing a turn-around in the short term.
Irrespective of which time-scale we may prefer, the end result is the same:
The Kahneman portion is recommending VTI, as is the Tversky portion:
The only difference is that the short term (Tversky) portion is ranking VEU higher than TLT – however, since the DM model selects only the strongest performing asset, VTI is recommended for both portions. Since VTI is currently held in both portions there will be no adjustments this month.
David
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