Updated: May 25, 2021

Dual Momentum Investing Strategy



Today we look at the book Dual Momentum Investing, by Gary Antonacci.

The concept has become the foundation of all my trading and investing strategies to date, providing the platform for reduced portfolio volatility.

Gary graduated from Harvard University with an MBA, and through the research presented in the book, has since won many awards including the prestigious Wagner Award.

To put Gary’s Dual Momentum work into perspective, a $1000 investment through his method in 1974 became $526,000 by 2013. Whereas the same $1000 invested into a typical global index became just $27,000 over the same period.

Additionally, his momentum method saw a maximum drawdown of just 22%, in contrast to a 60% maximum drawdown through the global equity index.

Let’s take a look at the results through to 2020 and see how we can apply the concept to our trading and investing strategies.

Gary measures the performance of his Dual Momentum approach by assigning it the name Global Equities Momentum, or GEM

GEM is a relatively simple rules-based approach, but before looking at the rules let’s first look at the overall performance against a global equity benchmark.

The data has been recorded from 1950 through to September 2020.

The returns of the global equity index have fallen considerably short of the GEM performance over the 70-year period, however the most important factor to look at is the avoidance of drawdown.

Using the method to time the market, therefore avoiding large drawdowns, can have huge benefits to a trading or investing strategy.

If we look at the drawdown periods over the years, we can better demonstrate the impact.

From 1973 through to the end of 1974 global markets dropped by just over 48%. The Dual Momentum method however avoided the fall.

Likewise, in the year 2000 to 2002 global markets dropped 49%, and again, Dual Momentum remained largely flat over the same period.

Moving forward to the credit crunch of 2007 to 2009, the global markets dropped a huge 56%, whilst Dual Momentum avoided the bulk of the drawdown by falling just 17%.

We can clearly see the performance benefits of the Dual Momentum strategy, but let’s now look at the theory and rules of the strategy to see how we can merge them with our own.

In its simplicity, Dual Momentum is a combination of both Relative Momentum and Absolute Momentum.

The rules look to rotate investment into areas of relative strength or safe assets, and the idea is highly correlated to the concept of Trend Following.

Let’s look at this process flow to simplify the strategy.

First, we ask the question; did the S&P 500 outperform US Treasury Bills over the last 12 months.

If the answer is no, then the rules suggest investing into US bonds only.

If the answer is yes, we assume momentum is in favour of equities and we need to ask a further question;

Did the S&P 500 outperform the World Index (Excluding US equities) over the last twelve months?