Pauling Dual Momentum Review: 24 March 2023

Old Window and Decorations

Pauling is one of two remaining Dual Momentum™ portfolios.  Remaining in the sense that I moved two DM portfolios over to the Sector BPI model.   The other DM portfolio is the McClintock.  Of the seven (7) different investing models explained and tracked here at ITA the Dual Momentum model is the most disappointing.  While the basic thesis or hypothesis is sound, the end results are not what I expected based on what I read in Gary Antonacci’s book.

Follow along with an update of the Pauling.

Pauling Dual Momentum Recommendation

The following worksheet is straight out of the Kipling spreadsheet.  The red arrow points to DM or the Dual Momentum model.  Only one ETF is used or recommended at any one time.  A purest following the DM model will have only U.S. Equities (VTI or ESGV), International Equities (VEU) and Bonds (BND or AGG) as the three “arrows” in the investment quiver.  I expand the security options by including VGLT, VOO, SCHP, and SHV.  I don’t think these ETF additions are impacting the performance of the Pauling.

The Dual Momentum (DM) model currently shuns equities and is recommending 100% of the portfolio be invested in short-term treasuries (SHV) at this time.  Note that I am using a one-year or 252 trading days look-back period to evaluate ETF rankings.

I have limit orders in to sell all shares of VEU and VOO.  The available cash and any cash raised by selling VEU and VOO will be used to purchase shares of SHV.  Numerous limit orders are in place to pick up shares of SHV.

Pauling Performance Data

Over the past 14.7 months the Pauling is behind the S&P 500 (SPY) by over three percentage points.  It will be difficult to quickly close that gap, but that is the challenge.

The following data comes from the commercial portfolio tracking software program, Investment Account Manager.

Pauling Risk Ratios

The following data table provides a picture of how well the Pauling is performing when risk measurements enter the equation.  Here is the good and bad news.

• The Sortino and Omega Ratios remain positive.  That is part of the good news.
• Both the Jensen Performance Index and Information Ratio are showing improvement over the past three weeks.
• A negative Information Ratio indicates the Pauling is lagging its benchmark.  That is not good news.
• Of major concern is the high negative (-1.7) slope of the Jensen.

In a few more days or in the April review, we will cleave the March 2022 Jensen value (10.54) and that will help with the Jensen slope.

I plan to give the DM model another year before moving these two remaining portfolios over to a different investing model.  An earlier move will only occur should the Sector BPI model prove more successful than I envisioned.