Lowell Herr
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Lowell Herr

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COMMENTS STATS

989 Comments

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## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

I agree, "curve fitting" of historical data can lead to extrapolation that is not merited. That is why I am testing variations of the Dual Momentum model using out-of-sample data. 1) I am using more than three ETFs as a starting point. 2) I have yet to concentrate a portfolio into one ETF or security. I'm uncomfortable with this type of concentration. 3) I use SHY as a cutoff or "circuit breaker" ETF. Antonacci does not. 4) I look at the Absolute Acceleration (AA) which involves two look-back periods. Antonacci does not consider this. AA shows up in the far right-hand column in the above data table. 5) I'm comparing portfolio performance against two benchmarks. a) VTSMX or total U.S. Equities market and b) ITA Index or a customized benchmark set up for each portfolio based on a Strategic Asset Allocation plan.

Lowell

http://itawealth.com

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

True, there is a tax drag since there will be securities that are not held for one-year to qualify for lower taxes. No, I do not have any data as to the amount of drag as our tax situations vary.

There will be periods when one will capture tax losses, but losses have tax limits. The Dual Momentum works best with tax deferred accounts or for those individuals who have limited income and are in lower tax brackets.

One way to reduce turnover is to use a variation of the Dual Momentum model and only sell a security when it under-performs SHY. This will reduce portfolio turnover and still prevent major draw-downs.

Lowell

http://itawealth.com

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

While 40 years is certainly more useful than an eight-year period, I have a few questions as to where the data comes from. While I think it is possible to find 40 years of S&P 500 data, SPY is available to us as far back as 1/29/93, ACWX (ACWI ex-US) only goes back to 4/1/08, and BIL data begins on 5/30/2007. Personally, I cannot confirm the accuracy of Antonacci's results as I don't have access to the data. Good science demands that other researchers be able to confirm the results.

All the studies, beginning on 6/30/2006, can be confirmed by other investors as the data is available. This criticism is not mean to take away from the underlying concept - how to keep investors out of severe draw-downs.

I also found it interesting that Antonacci begins his study at the bottom of the deepest bear market I experienced in my investing life. Is this why the 40-year record looks so great?

I know you will read HedgeHunter's article that I just posted and referenced this morning.

Lowell

http://itawealth.com

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

http://bit.ly/1u1fIen

Lowell

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

Give me a few days and I should have some additional "look-back" data for you to examine.

The model I am shifting to for portfolio management uses a three- and six-month look-back for ranking securities. The spreadsheet I use also employs SHY as the cutoff or circuit breaker ETF. Performance below SHY is grounds for dismissal from the portfolio. I also start with more than three securities as I am interested in greater portfolio diversification. One more changes is that instead of concentrating the portfolio in only one ETF at a time I use between 2 and 5 depending on the size of the portfolio.

Antonacci does not discuss the problems one might face implementing the Dual Momentum model with a portfolio in the millions of dollars. In fact I can see rebalancing problems when I portfolio reaches $500,000 and above. It is one thing to work out a model on paper and another to put it into action with real money.

Lowell

http://itawealth.com

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

Antonacci uses the S&P 500 (SPY), ACWI, and AGG.

Lowell

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

I don't have data that I've checked personally, but here is data from Antonacci's book. It spans the period from 1974 - 2013. I don't know what assets he used as ETFs do not go back that far - at least those I use.

S&P 500 Index: Annual Return = 12.34% Standard Deviation = 15.59% Sharpe Ratio = 0.42 Maximum Drawdown = -50.95%

GEM or Dual Momentum: Annual Return = 17.43% Standard Deviation = 12.64% Sharpe Ratio = 0.87 Maximum Drawdown = -22.72%

Given a little time I can come up with data from 6/30/2006 through current date.

Lowell

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

At present there is very little difference between VTI and TLT. I rebalance portfolios every 33 days for several reasons. One is to move the rebalancing activity throughout the month.

The spreadsheet I use works off calendar days. I know Antonacci recommends a look-back of 12 months. For most of my work I use a maximum look-back of 6 months.

Lowell

http://itawealth.com

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

Not quite right, although close. Using a 365 calendar day look-back, based on 11/6/2014 data, TLT has an annual return of 16.25% while VTI is very close at 16.04%. I pulled down this data this morning from Yahoo! before the market opened.

Lowell

http://itawealth.com

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

Absolute momentum is almost implicit in the screening process and this may be why Antonacci does not emphasize it in his flow chart. The short-term treasure (SHY for example) has a lower volatility than either U.S. or International Equities. Therefore, if either is under-performing SHY, there is a reasonable probability they have a negative return for the year. Even if they are still positive (positive absolute momentum) we don't invest in either unless they are outperforming the short-term instrument.

Lowell

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

The weights are not equal. It is 100% in one of the three securities.

One will not invest in either U.S. Equities (I use VTI) or International Equities (VEA or VEU) if their absolute momentum over the past 12 months is negative. He states this on page 89 of the book. If the performance is negative, "invest instead in short-to intermediate-term fixed-income instruments until the trend turns positive."

Lowell

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

If you have Antonacci's book, page 101 is essentially what I outlined. To understand his absolute momentum process, one need to go to page 89 where he writes, "We then apply absolute momentum as a trend-following filter by seeing if the excess return of our selected asset has been positive or negative over the preceding year."

If positive, buy U.S. Equities or International Equities, depending on which is higher in performance. But if negative, then go to treasuries. I use TLT for this security. Some will use a bond fund or shorter term treasury. Hope this helps. I have this programmed into a spreadsheet so I can work with more than three ETFs.

Lowell

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

Unfortunately, I was not using any momentum concepts during the dot-com bubble, or the 2008 recession. Way back in the mid-1980s I was using a model very similar to Mebane Faber's moving average idea. That worked quite well. I was still working at the time and was involved in a physic education project for a number of years. That project took my eye off the investing ball.

This link is as good as I can provide. It is a back-test, not an out-of-sample result. Those are reported on every month.

http://bit.ly/1orB5ok

Lowell

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

http://bit.ly/1q9NVBX

This second site shows the 8-year back-testing results.

http://bit.ly/1orB5ok

Lowell

## Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]

The book does not include a spreadsheet that will generate a screenshot as shown in my article. While the model is sufficiently simple one could do the analysis with pencil and paper, it is handy to have a spreadsheet to generate the calculations.

I did revise my Top Ten Investment books and Dual Momentum makes the list.

http://bit.ly/1orhULl

Lowell

http://itawealth.com