Antonacci's Dual Momentum explained: relative and absolute momentum
In his book Dual Momentum Investing, Gary Antonacci proposed a simple idea: combine two momentum signals to decide where to invest.
The two signals
- Relative momentum. Which has returned more over the last 12 months, US equities or equities from the rest of the world? The winner is chosen.
- Absolute momentum. Has that winner returned more than Treasury bills (the risk-free alternative)? If not, it is not worth taking risk: switch to bonds.
The GEM portfolio in three lines
- If SPY does not beat BIL over 12 months: 100% in bonds (AGG).
- If it does: 100% in the better of SPY and ACWX.
- One decision a month, with a single holding.
Check this month's signal on the Dual Momentum sheet: right now it points to ACWX.
What the numbers say
Since May 2009, with real ETFs, the backtest gives 9.4% a year with a maximum drawdown of -19.9%. Turnover is low (158% a year), which means few costs and few taxes.
Dual Momentum versus HAA
| Dual Momentum (GEM) | HAA Balanced | |
|---|---|---|
| Assets held | 1 | 4 |
| Universe | 3 ETFs + bonds | 8 ETFs + 2 safe |
| Canary | SPY versus BIL | TIP |
| Turnover | Low | High |
| Diversification | Minimal | Greater |
GEM's simplicity is its virtue, but being 100% in a single asset means a mistake hurts.
Limits
- Slow signal: a 12-month window lags in fast drops.
- Concentration: one ETF, one currency.
- Whipsaws: in sideways markets it can switch assets several times, losing on each switch.
Frequently asked questions
Who is Gary Antonacci?
A US investor and researcher, author of Dual Momentum Investing (2014) and creator of Dual Momentum as a method.
Is GEM a good option for a beginner?
It is one of the easiest to understand and follow, but being all-or-nothing it can give significant scares. Read the risks first and compare it with passive portfolios.
How often does it switch assets?
A few times a year on average. It depends on the market.