DUAL MOMENTUM

Updated: May 25, 2021

Dual Momentum Investing Strategy


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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?


If the answer is yes, we are told to invest in an S&P 500 index fund.

If the answer is no, we invest in an ETF or index fund of world equities excluding US stocks.


These same questions are asked every month and the investment portfolio should be rebalanced to suit. Incidentally the turnover and consequential transaction costs have been very low, averaging just 1.4 turns per year on average.

At any one time the Dual Momentum strategy will move our investments into either Bonds, US equities, or world equities, and remarkably, using this simple method has yielded returns of more than 17% per year on average, with considerably less volatility than an equity only position.


Gary followed this process from October 1974 to October 2013. During this period the strategy allocated funds into the S&P 500 41% of the time, 29% of the time into a world stock index which excluded US stocks, and 30% of the time funds were placed into bonds.


Many investors simply follow this process to achieve steady returns each year. My preference however is to apply the same rules in terms of allocation, but instead of buying the recommended index funds, I apply my trading strategy to the recommended allocation. Therefore, if the Dual Momentum strategy suggests I should be in the S&P 500, I will apply my trading strategy to these stocks. If Its recommended that I should be invested in equities from around the world excluding US stocks, I will apply my strategy there. If I should be invested in Bonds, I will generally either be in cash or looking for to short equities.


The fundamental concept of the Dual Momentum strategy is to follow the safest fastest path.

Similar to choosing a train, we want the train (or asset) to take us to the destination in the fastest time and as safely as possible. If train A is US equities and is moving the fastest, we want to put our capital there. If train B is global equities and is heading for the same direction but at a faster speed, we want to move our capital there.



If we see a change in direction or a change in momentum, we should be moving our capital into a safe haven, whilst waiting for the next fastest train to come along heading for our destination.


The term momentum is based on a Newtonian concept which suggests an object in motion tends to stay in motion.

Gary says that this theory is not only true for the physical universe but also to the financial universe, and adds : -

“Assets that are going in one direction tend to keep going in one direction”.


The way I see the theory is that it provides a solid foundation, which on its own can provide an average 17% per year return. The foundation is divided into the three recommended asset allocations, US equites, World equities, and the safe haven of cash or bonds.

The strategies I use are predominantly based on forms of momentum. Usually a breakout with volume, but always with the moving averages in my favour.


I use the strategy within the asset universe offering the best momentum over the last 12 month period, and often switch to cash when required. In effect I have momentum within momentum, or better described as Macro Momentum from the foundation, and Micro Momentum through the strategies applied.

This differs slightly to Gary’s application in terms of buying an index or ETF, but I prefer to be very selective and filter stocks with individual momentum within these groups.


By applying your strategy to the right asset universe at the right time can really have a huge impact to your trading or investment goals.


Just remember make sure you get on the right train and get off at the right time.

A book I highly recommend.

Financial Wisdom

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