In his Dual Momentum book, Gary Antonacci makes a major issue of the 12-month look-back period. In the SAS 7.1.x spreadsheet we use a shorter look-back and it is a combination of 91- and 182-calendar days plus a 20% weight assigned to volatility. These are the default settings and they can be adjusted. In this blog I take a look at the three critical asset classes used to make up the three security portfolio highly recommended by the passive investors over on the Bogleheads web site. Those asset classes are U.S. Equities (VTI or VTSMX), International Equities (VEU or VGTSX), and Bonds (BND, AGG, or VBMFX).
Default Look-Back: Below is the three ETF portfolio using the default settings for the SAS 7.1.3 spreadsheet. If one were following the Global Equity Momentum (GEM) model described in Dual Momentum, all money is invested in VTI or U.S. Equities. While the absolute momentum for VEA is positive (it ranks above SHY), it takes second place based on relative momentum. Investing all dollars in VTI remains in place until the next portfolio review or 33 days for our schedule.
Next we look at the 12-month look-back in the second screenshot.
12-Month Look-Back: In the following table the look-back number of days is shifted to 365 and 100% of the weight is assigned to that period. While the ROC1 and ROC2 values change, the ranking also shifts. U.S. Equities (VTI) is still in first place so the portfolio would look the same. When using the 12-month look-back, VEU has a negative absolute momentum as it ranks below SHY, our cutoff ETF. Bonds (BND) is ranked above SHY so it has a positive absolute momentum, but still ranks second based on the relative momentum orientation.
Based on current data, the 12-month look-back and SAS 7.1.x default settings result in the same portfolio going forward for the next 33 days.