Testing a 2-12 Asset Class Absolute Momentum Strategy

A subscriber asked about the performance of a strategy that each month has five equal-weighted positions:

• SPDR Gold Shares (GLD) to represent gold if its past 2-month and 12-month returns are both positive, or otherwise iShares 1-3 Year Treasury Bond (SHY).
• iShares MSCI ACWI (ACWI) to represent all-world equities if its past 2-month and 12-month returns are both positive, or otherwise SHY.
• Vanguard Real Estate Index Fund (VNQ) to represent real estate investment trusts if its past 2-month and 12-month returns are both positive, or otherwise SHY.
• iShares Barclays 20+ Year Treasury Bond (TLT) to represent long-term U.S. Treasuries if its past 2-month and 12-month returns are both positive, or otherwise SHY.
• iShares iBoxx $ Investment Grade Corporate Bond (LQD) to represent corporate bonds if its past 2-month and 12-month returns are both positive, or otherwise SHY.

We designate this strategy 2-12 Absolute. As requested, we also consider two variations that substitute Invesco DB Commodity Index Tracking Fund (DBC) for either TLT or LQD, and we compare 2-12 Absolute performance to that of a portfolio that each month allocates 50% to Simple Asset Class ETF Value Strategy (SACEVS) Best Value and 50% to Simple Asset Class ETF Momentum Strategy (SACEMS) equal-weighted (EW) Top 2. We begin tests at the end of March 2009, limited by inception of ACWI. We exclude monthly rebalancing/switching frictions for all strategies. Using monthly dividend-adjusted prices for GLD, ACWI, VNQ, TLT, LQD, DBC and SHY starting March 2009 and monthly gross returns for 50-50 SACEVS Best Value and SACEMS EW Top 2 starting April 2009, all through August 2021, we find that: (more…)