The four geographic regions, two fixed income and a physical asset, are as follows:
As with our other Gary Antonacci’s adopted strategies and courtesy of our in-house analysis, there are subtle differences in the assets we have chosen to represent each asset class versus those in Antonacci’s original strategy. Also, our momentum score uses shorter look-back periods than the 6 months stipulated by the original strategy. This leads to faster signals with a higher trading frequency, but slightly better returns with similar volatility.
At the close on the last trading day of the month, calculate the momentum score for each of the seven asset classes.
Choose the two assets with the highest momentum score and allocate 1/2 of the portfolio to each asset. Hold until the last trading day of the following month
“Diversification is the only free lunch in investing” is a quote by Nobel laureate Harry Markowitz. It’s a metaphor that means diversification can reduce risk without sacrificing returns and involves spreading investments across different assets, geographic markets, industry sectors or asset classes. This helps to reduce the impact of a single asset or asset class underperforming. Diversification does reduce overall portfolio risk, helps to withstand volatile market conditions and reduces the impact of an negative event. However, diversification is not a free lunch because there is a cost to lower returns.
Using relative momentum to an universe of diversified global equity markets indices allows us to be fully invested in the most performing markets while staying away from regions that underperform. And instead of the usual way of lowering volatility by adding fixed income, the strategy integrates fixed income assets into the momentum process itself. This allows the strategy to rotate out of equities and into fixed income assets when they show stronger momentum, for example in adverse market conditions.
Gold and commodities typically have low cross correlation to both equities and bonds, with gold being a de facto currency as well as a commodity. In addition, gold is a hedge and diversifier, as well as a safe haven with respect to equities and bonds and adding it to the universe further improves the performance of the strategy.
The results are extraordinary risk adjusted returns at a reasonable level of volatility. Adding fixed income and other diversifying assets, such as gold, to momentum-based portfolios gives substantially more improvement than it does to buy-and-hold portfolios. In this sense, the diversification in the Global Markets Rotation offers a free lunch and a cherry on top.
Our Global Markets Rotation strategy is included in all our model portfolios.
More Resistant To Market Stress
Balanced for Risks and Opportunities
Exposure To Market Opportunities
fundalytix is not a trading platform or robo-advisor. fundalytix is somewhere in the middle in the best way possible. fundalytix is a small investment boutique with automated investing with a high level of customisation for its clients. Once we build your portfolio, our platform does the rest. This approach keeps cost down which results in higher growth and net returns.
