01 Dec Learning From Gary Antonacci's "Optimal Momentum: A Global Cross Asset Approach"

Relative momentum can be used for adaptive asset allocation for better risk-adjusted returns.

In this article, Absolute Momentum will be used interchangeably with trend following or time series momentum. Relative Momentum will be used interchangeably with cross-sectional momentum or relative strength.

For each momentum portfolio, the paper selects the top 33-50% of funds each month based on which funds have shown the strongest gains during the prior six months.

The various portfolios explored and the ETFs considered in each portfolio are detailed below:

Style Portfolio

iShares S&P 500 Value Index (IVE)

iShares S&P 500 Growth Index (IVW)

iShares S&P MidCap 400 Value Index (IJJ)

iShares S&P MidCap 400 Growth Index (IJK)

iShares S&P SmallCap 600 Value Index (IJS)

iShares S&P SmallCap 600 Growth Index (IJT)

Industries Portfolio

Materials Select Sector SPDR (XLB)

Energy Select Sector SPDR (XLE)

Financial Select Sector SPDR (XLF)

Industrials Select Sector SPDR (XLI)

Technology Select Sector SPDR (XLK)

Consumer Staples Select Sector SPDR (XLP)

Utilities Select Sector SPDR (XLU)

Health Care Select Sector SPDR (XLV)

Consumer Discretionary Select Sector SPDR (XLY)

Regions Portfolio

North America iShares Russell 1000 (IWB)

Europe iShares S&P Europe 350 (IEV)

Asia iShares MSCI Japan (EWJ)

Pacific iShares MSCI Pacific ex-Japan (EPP)

Regions+Notes Portfolio

North America iShares Russell 1000 (IWB)

Europe iShares S&P Europe 350 (IEV)

Asia iShares MSCI Japan (EWJ)

Pacific iShares MSCI Pacific ex-Japan (EPP)

iShares Barclays 7-10 Year Treasury (IEF)

iShares Barclays 1-3 Year Treasury (SHY)

Regions+Notes+Gold Portfolio

North America iShares Russell 1000 (IWB)

Europe iShares S&P Europe 350 (IEV)

Asia iShares MSCI Japan (EWJ)

Pacific iShares MSCI Pacific ex-Japan (EPP)

iShares Barclays 7-10 Year Treasury (IEF)

iShares Barclays 1-3 Year Treasury (SHY)

SPDR Gold Shares (GLD)

“Figure 2” of the paper (reproduced below) shows that Regions+Notes+Gold portfolio delivered the best risk-adjusted performance.

Source: Gary Antonacci

Research Paper: Optimal Momentum: A Global Cross Asset Approach

Author: Gary Antonacci

Company: Portfolio Management Consultants