Author Topic: Portfolio Visualizer Dual Momentum  (Read 1609 times)

AdrianC

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Portfolio Visualizer Dual Momentum
« on: March 16, 2017, 09:15:16 AM »
Portfolio Visualizer has timing models, including dual momentum.

https://www.portfoliovisualizer.com/test-market-timing-model?timingModel=6

Test results:
Dual momentum
Total US/Total International funds (VTSMX/VGTSX) with Total Bond (VBMFX) as the out of market asset.
10 month timing period.
1998-Feb 2017

Timing Portfolio CAGR 11.4%  Max Drawdown -21%

Equal Weight Portfolio CAGR 6.1%  Max Drawdown -55%

For comparison:
Total US Stock Market CAGR 7%  Max Drawdown -51%

Wow! This warrants further investigation.

MustacheAndaHalf

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Re: Portfolio Visualizer Dual Momentum
« Reply #1 on: March 16, 2017, 09:33:51 AM »
You can use VFINX and FBNDX to calculate from 1987 to 2017.
That gives me about 8.5% dual-momentum CAGR versus 10.2% for the S&P 500 index.

Note that any algorithm can be "curve fitted" by it's author to prior performance data.  The test of an algorithm is how it works after publication, especially if it exists as a mutual fund.

My biggest problem with dual momentum is how it neatly dodges every downturn by going 100% into bonds.  Accurately predicting 100% of future crashes seems unlikely at best.  And further, the fund exits and enters the market at about the same level, gaining only the interest generated by bonds.  That's fairly close to just riding out the market correction in 100% stocks.  Between so little gain, and so much risk if the algorithm guesses wrong, I don't view the dodging of market crashes as worthwhile.

Momentum itself is interesting enough that I've been running an experiment on it.  I just don't think "dual momentum", which can switch into 100% bonds, is a reliable way to dodge future market crashes.

Mr. Rich Moose

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Re: Portfolio Visualizer Dual Momentum
« Reply #2 on: March 16, 2017, 10:04:24 AM »
To the OP:

There's a long thread on this forum with a lot of information on dual momentum, including many criticisms of the strategy. The original author of that thread was MilesDividendMD.

You should be able to find it with the search function.
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AdrianC

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Re: Portfolio Visualizer Dual Momentum
« Reply #3 on: March 16, 2017, 10:56:51 AM »
You can use VFINX and FBNDX to calculate from 1987 to 2017.
That gives me about 8.5% dual-momentum CAGR versus 10.2% for the S&P 500 index.

What did you use for international stock?

AdrianC

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Re: Portfolio Visualizer Dual Momentum
« Reply #4 on: March 16, 2017, 11:10:55 AM »
VFINX VTRIX with FBNDX as the out of market asset (VTRIX the only international fund I could think of that goes that far back, off the top of my head).
10 month timing period.
1987-Feb 2017

Timing Portfolio CAGR 12.9%  Max Drawdown -23%

S&P500 Index fund CAGR 10.2%  Max Drawdown -51%

Avoiding the massive drawdown is the point, allowing a larger equity stake. Extra return is just icing on the cake.

AdrianC

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Re: Portfolio Visualizer Dual Momentum
« Reply #5 on: March 17, 2017, 06:45:43 AM »
You can use VFINX and FBNDX to calculate from 1987 to 2017.
That gives me about 8.5% dual-momentum CAGR versus 10.2% for the S&P 500 index.

What did you use for international stock?

I wasn't able to reproduce your results. I got close (8.8%) using VFINX and FBNDX as the two risk assets and cash as the out of market asset. That's not what I was looking at, which was switching between two risk assets (US and international stocks), with bonds being the "out of market" low risk asset.

The nice thing about this strategy is that it uses three funds we all know and love already. There's nothing weird about the investments: VTI, VXUS, BND at Vanguard. Trades are no cost at Vanguard, not that it trades very much. The three fund portfolio is good, right? Pretty much all we need. So assuming we did this with a portion of the portfolio, not all in, all we're doing is messing around with allocation, using a rules-based system. Somehow I find that attractive.

Here's a nice article giving pros and cons:

http://awealthofcommonsense.com/2015/07/my-thoughts-on-gary-antonaccis-dual-momentum/

I definitely have more research to do.

Monkey Uncle

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Re: Portfolio Visualizer Dual Momentum
« Reply #6 on: March 18, 2017, 04:56:44 AM »
Take Mr. Rich Moose's advice and go read the existing marathon thread on this subject.  MilesDividendMD wasn't the originator of the thread, but was probably the most frequent poster in it.  The thread is really long because of a lot of sniping back and forth between proponents and detractors of the strategy, but there's some good information buried in there, too.
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MustacheAndaHalf

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Re: Portfolio Visualizer Dual Momentum
« Reply #7 on: March 18, 2017, 06:06:48 AM »
VFINX VTRIX with FBNDX as the out of market asset (VTRIX the only international fund I could think of that goes that far back, off the top of my head).
...
Avoiding the massive drawdown is the point, allowing a larger equity stake. Extra return is just icing on the cake.
Switching from international to international value is significant - you shouldn't write it off like that.

Avoiding drawdowns assumes Dual Momentum can dodge future market crashes every time.

Better than debating with me is reading up on the other thread suggested by two other posters.

AdrianC

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Re: Portfolio Visualizer Dual Momentum
« Reply #8 on: March 18, 2017, 06:14:26 AM »
VFINX VTRIX with FBNDX as the out of market asset (VTRIX the only international fund I could think of that goes that far back, off the top of my head).
...
Avoiding the massive drawdown is the point, allowing a larger equity stake. Extra return is just icing on the cake.
Switching from international to international value is significant - you shouldn't write it off like that.

I haven't written anything off. I asked you which international fund YOU used to get your numbers. I used VTRIX because I didn't know of an international index fund going that far back.

Which fund did you use?

AdrianC

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Re: Portfolio Visualizer Dual Momentum
« Reply #9 on: March 18, 2017, 06:17:48 AM »
Take Mr. Rich Moose's advice and go read the existing marathon thread on this subject.  MilesDividendMD wasn't the originator of the thread, but was probably the most frequent poster in it.  The thread is really long because of a lot of sniping back and forth between proponents and detractors of the strategy, but there's some good information buried in there, too.

I've been reading it. Heavy going.

I just thought it was cool that everyone can try the back test for themselves in Portfolio Visualizer.

Mr. Rich Moose

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Re: Portfolio Visualizer Dual Momentum
« Reply #10 on: March 18, 2017, 09:23:25 AM »
The Dual Momentum strategy is definitely interesting and looks appealing from a lot of angles. Although it's very difficult to justify, or suggest the value of, timing mechanisms to most Mustachians.

I actually moved​ 100% of my own portfolio to a strategy based on DM, but adapted for Canadian use and tweaked a bit.

I am still unsure of the long term performance of DM compared to a 80/20 or similar portfolio, but it's a calculated risk I decided to take. In the worst event, I also don't believe it's likely to substantially underperform an 80/20 either. I have been monitoring my portfolio strategy since the big DM thread on here and I would have done very well had I immediately invested.

So far I'm not complaining at all, but of course 5-6 months is hardly a solid test.
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sol

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Re: Portfolio Visualizer Dual Momentum
« Reply #11 on: March 18, 2017, 10:01:03 AM »

AdrianC

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Re: Portfolio Visualizer Dual Momentum
« Reply #12 on: March 18, 2017, 03:37:36 PM »
You should really read every page of this: https://forum.mrmoneymustache.com/investor-alley/dual-momentum-investing/

I'm a working my way through it.

First learning - Portfolio Visualizer has had the dual momentum feature for a few years. Never noticed.