Complex Offensive/Defensive Asset Class Momentum

Can investors achieve attractive asset class momentum strategy performance by applying slow relative momentum to different risk-on (offensive) and risk-off (defensive) sets of exchange-traded funds (ETF), and fast absolute momentum to a separate risk mode identification set of ETFs? In his July 2022 paper entitled “Relative and Absolute Momentum in Times of Rising/Low Yields: Bold Asset Allocation (BAA)”, Wouter Keller presents an aggressive asset allocation strategy that combines features of his previous models (Protective Asset Allocation, Vigilant Asset Allocation and Defensive Asset Allocation). This Bold Asset Allocation strategy consists of the following baseline asset universes and rules:

1. When none (any) of SPY, VWO, VEA and BND have negative weighted returns over the past 1, 3, 6 and 12 months, use the offensive (defensive) mode. Weights for past 1, 3, 6 and 12 months returns are 12, 4, 2 and 1, respectively.
2. When in offensive mode, hold the equal-weighted six of SPY, QQQ, IWM, VGK, EWJ, VWO, VNQ, DBC, GLD, TLT, HYG and LQD with the highest ratios of current monthly price to average of the last 13 prices (including current price).
3. When in defensive mode, hold the equal-weighted three of TIP, DBC, BIL, IEF, TLT, LQD and BND with the highest ratios of current monthly price to average of the last 13 prices (including current price), except replace with BIL any of these top three with past price ratio less than that of BIL.

He reforms the BAA portfolio monthly, assuming constant 0.1% 1-way trading frictions. Using modeled monthly total returns prior to ETF inception and actual monthly total returns after inception for each specified ETF during December 1970 through Jun 2022, he finds that:

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