Specifically, the system I follow is called Global Equities Momentum (GEM). Simply invest 100% in the strongest asset among 3 (US stocks, non-US stocks and bonds) based on past 1-year performance. Details are described by GEM's founder Gary Antonacci in his book Dual Momentum Investing. I encourage you to read it.
The following are my own independently-verified performance results for GEM over the period from Jan 1, 1972 to Mar 31, 2015 (over 43 years).
In the above graph,
- RED = US stocks (S&P 500 Index)
- GREEN = Non-US stocks (MSCI ACWI ex-US Index)
- PURPLE = Bonds (Barclay's U.S. Aggregate Bond Index)
- BLUE = Global Equities Momentum (GEM)
GEM is the clear winner. It delivered significantly higher returns compared to both US and non-US stock indices and with lower volatility. This was achieved largely by side-stepping severe bear market drawdowns.
Over our 43-year test period, GEM made an average of only 1.1 trades per year. It was fully invested in US stocks for approx 40% of the time, non-US stocks for 40% and in bonds for only 20%. Compare this to a traditional portfolio having a fixed allocation to stocks and bonds at all times. With this traditional approach, you suffer in bear markets due to the exposure to stocks and in bull markets due to the exposure to bonds.
Finally, GEM alleviates concerns of over-optimization and data mining in four ways. First, it has only one simple model parameter: the look-back period (which is set to an elegant, whole-number value of 1 year). Second, momentum has over 2 centuries of backtest data showing persistent outperformance on a decade-by-decade basis. Third, momentum now has several decades of out-of-sample data since first being studied by academia. Fourth, there is a logical explanation for why momentum occurs in markets (please refer to my first blog post).
Results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Additional information regarding the construction of these results is available upon request. Past performance is no assurance of future success. Please see our disclaimer page for more information.