Author Topic: Dual momentum or passive asset allocation  (Read 2066 times)

kalozo

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Dual momentum or passive asset allocation
« on: August 10, 2016, 09:39:40 AM »
I am in the UK and would like to get some opinions and advice. I have a portfolio of about £300k in tax efficient holdings – SIPP and ISA. The portfolio has floundered around for 5+ years and never seems to do particularly well.

I have been interested in investing for many years and have read lots of books (The Ivy Portfolio, Dual Momentum, Smarter Investing, 3% Signal etc) but don’t seem to be good at it!

I want to make some definitive decisions about what I do next.

So Tim Hale (Smarter Investing) advises building a good diversified portfolio through asset allocation. I want to keep about 80% in equities (age 44). So then looking at the correlation of markets, there doesn’t seem to be a lot of point trying to diversify – might as well stick the money in a World Tracker.

So then I read Gary Antonacci (Dual Momentum) and this seemed to make a lot of sense to me. Again given the correlation of markets, he suggests when you are in the market you are in the S&P or a World Tracker ex USA.

I like the concept of dual momentum particularly the ability to help manage drawdowns which it seems to do quite effectively. But it obviously has the negative effects of whipsaw and times when it doesn’t match being just in the S&P.

So then I read Jason Kelly (3% Signal). Not that taken by the concept of the 3% signal but it did make me think about looking more into small cap trackers. Effectively Jason shows that US small cap has over time pretty much out performed anything else – there is higher risk but again, given market correlations, the peaks and troughs of small cap trackers are greater but the long term outcome is better.

So this got me thinking about combining small cap with dual momentum. Effectively maximising the upside of small cap and managing drawdown through dual momentum.

So I ran dual momentum analysis on Portfolio Visualizer for IJR (US small cap) and SHY. So effectively all in IJR or all in SHY. This seemed to provide a better return and lower risk than the following diversified asset allocation:

REIT   5.00%
Intl Small Cap Stocks   10.00%
Intl Developed Markets   35.00%
Emerging Markets   10.00%
Intl Europe   15.00%
10-year Treasuries   7.50%
Long Term Corporate Bonds   7.50%
Commodities   10.00%

From 2003:
CAGR 11.65% vs 8.25%
Max drawdown -22.06% vs -36.14%
Sharpe of 0.80 vs 0.46
Sortino of 1.38 vs 0.81

Does anyone use dual momentum with a significant live portfolio? Any advice about what strategy to adopt would be great...

Also concerned that the markets look mightily high to be going all in whether passive asset allocation or dual momentum

Thanks


Interest Compound

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Re: Dual momentum or passive asset allocation
« Reply #1 on: August 10, 2016, 09:43:31 AM »
Everything you could ever possibly want to know about Dual Momentum has been discussed in meticulous detail in this 1044 post thread:

http://forum.mrmoneymustache.com/investor-alley/dual-momentum-investing/

Enjoy!

TL;DR (Too Long;Didn't Read) - Don't do it.

frugledoc

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Re: Dual momentum or passive asset allocation
« Reply #2 on: August 10, 2016, 09:52:16 AM »
I have a similar size portfolio to you but these days I just stick everything into vanguard all world. 

MustacheAndaHalf

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Re: Dual momentum or passive asset allocation
« Reply #3 on: August 10, 2016, 10:50:12 PM »
When you look at dual momentum's performance graphs, isn't it odd how precisely it dodges past recessions?

A sharp drop could be too quick for dual momentum, and could become a correction that dual momentum can't avoid.