{"id":2097853,"date":"2019-01-22T15:08:03","date_gmt":"2019-01-22T09:38:03","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2097853"},"modified":"2019-01-22T15:08:03","modified_gmt":"2019-01-22T09:38:03","slug":"global-equities-momentum","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2019\/01\/22\/global-equities-momentum\/","title":{"rendered":"Global Equities Momentum"},"content":{"rendered":"

Gary Antonacci created the Global Equities Momentum<\/a> (GEM) model that applied dual momentum to stock and bond indices. It toggles between stocks and bonds using 12-month trailing returns. And when it toggles to “stocks,” it chooses between US equities and International (ex-US) equities based on whichever posted higher returns in the previous 12-months. Newfound Research<\/a> has a chart that puts it across succinctly:
\n\"\"<\/a><\/p>\n

The model uses the S&P 500 index as a stand-in for US equities and the WORLD ex USA index for international stocks. However, there is nothing in the construction that prevents us from replacing those market-cap based indices with momentum based ones.<\/p>\n

US Momentum \/ Market-cap International<\/h3>\n

Scenario 1: keep everything the same, except in the last stage, instead of buying S&P 500, buy US Momentum (SP 500×1<\/strong>).
\nScenario 2: swap out S&P 500 and put US Momentum everywhere in the decision tree (MOM<\/strong>).<\/p>\n

In the cumulative return chart below, the black line is the base case. It represents GEM as originally designed. The red line is Scenario 1<\/em> above, green is Scenario 2<\/em>.
\n\"sp500.mom.GEM.cumulative\"<\/a><\/p>\n

Even though Scenario 2<\/em> has higher returns, it comes at the cost of higher drawdowns. Scenario 1<\/em> seems to strike a compromise.
\nBase case drawdowns:<\/strong>
\n\"SP500.GEM.dd\"<\/a>
\nScenario 1 drawdowns:<\/strong>
\n\"SP500x.GEM.dd\"<\/a>
\nScenario 2 drawdowns:<\/strong>
\n\"MTUM.GEM.dd\"<\/a><\/p>\n

US Momentum \/ International Momentum<\/h3>\n

What if, we bought International Momentum (WORLD ex USA MOMENTUM) instead of the market-cap based WORLD ex USA?
\nScenario 3 (dark blue): keep everything the same, except in the last stage, instead of buying S&P 500, buy US Momentum. And instead of buying market-cap international, buy WORLD ex USA MOMENTUM (SP 500×2<\/strong>).
\nScenario 4 (light blue): swap out S&P 500 and put US Momentum everywhere. And instead of buying market-cap international, buy WORLD ex USA MOMENTUM (MOMx2<\/strong>).<\/p>\n

\"sp500.mom.world.GEM.cumulative\"<\/a><\/p>\n

Scenario 3 drawdowns:<\/strong>
\n\"SP500x2.GEM.dd\"<\/a>
\nScenario 4 drawdowns:<\/strong>
\n\"MTUMx2.GEM.dd\"<\/a><\/p>\n

Here are returns broken down annually for all the scenarios discussed above:
\n\"sp500.mtum.x2.GEM.annual\"<\/a><\/p>\n

It appears that using the S&P 500 index for making decisions about buying US vs. World ex-US momentum boosts returns while keeping a floor under drawdowns.<\/p>\n

Code and charts are on github<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Gary Antonacci created the Global Equities Momentum (GEM) model that applied dual momentum to stock and bond indices. It toggles between stocks and bonds using 12-month trailing returns. And when it toggles to “stocks,” it chooses between US equities and International (ex-US) equities based on whichever posted higher returns in the previous 12-months. Newfound Research … <\/p>\n","protected":false},"author":2,"featured_media":2091073,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[3541,3491],"class_list":["post-2097853","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-backtest","tag-momentum","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2097853","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2097853"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2097853\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2091073"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2097853"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2097853"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2097853"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}