The performance of major asset classes (equities, bonds, commodities, real estate) is historically correlated with the current and prospective economic environment. Using GDP growth and inflation outlook to define an economic environment, we can group together the assets which usually performed best in each environment.
We calculate a momentum score for each asset and derive a cumulative score for each group. We then pick the best group(s), and from each of these the best assets. We finally invest equally in the resulting assets. The allocation to a single asset is never allowed to reach 100% of the portfolio value.
The strategy performance is robust in the last 20+ years. Its volatility and drawdowns stay reasonably low also during crisis periods.
Strategy details
- Asset classes: equities, REITs, bonds, commodities
- Number of assets: 13
- Backtest period: Jan 1998 - Oct 2022
- Rebalancing frequency: monthly
- CAGR: 13.86 %
- Max Drawdown: -25.91 %
- Sharpe ratio: 0.95
- Maximum leverage: 1 (long only)
- Detailed tearsheet: Economic Cycle Speculator
Equity curve
This strategy evaluates a momentum based score for each asset, then ranks the assets within the same category according to their scores, and invests in equal parts in the highest ranking assets in each category.
Assets are grouped in three categories: risky assets (for example equities), safe assets (for example government bonds), and risk-free assets (for example ultra short term government bonds). If there is no asset with a positive score in a given category, the corresponding part of the portfolio will be allocated to the highest ranking risk-free assets.
The main source of underperformance for this strategy is the same as for the “Aggressive” variant: a lack of a clear trend across different asset classes. The higher diversification helps reducing this problem though.
Strategy details
- Asset classes: equities, REITs, corporate bonds, government bonds
- Number of assets: 25
- Backtest period: Jan 1998 - Oct 2022
- Rebalancing frequency: monthly
- CAGR: 13.69 %
- Max Drawdown: -19.76 %
- Sharpe ratio: 1.15
- Maximum leverage: 1 (long only)
- Detailed tearsheet: Global Momentum Balanced
Equity curve
Sampling of the equity curve is on a monthly basis.
This strategy evaluates the “state” in which each portfolio asset is in, and invests in the assets with the best upside outlook.
The “state” of an asset is a quantity determined from several parameters specific to each security, as: volatility, volumes, short and long term trends, correlations with other assets. Once the states have been determined, the portfolio is allocated to the securities with the highest state-wise rank.
The main advantage of this strategy is its ability to provide a significant improvement over the equity markets performance with a relatively low rebalancing frequency.
The main reason of underperformance for this strategy is a period in which the major equity indices continuously switch state (i.e. when equity markets move sideways).
There are three versions of this strategy. The one described on this page is named “balanced” as the allocations to each asset class can never reach 100% of the overall value of the portfolio, but the overall diversification is lower than the “defensive” variant of this strategy.
Strategy details
- Asset classes: equities, REITs, corporate bonds, government bonds
- Number of assets: 10
- Backtest period: Jan 1998 - Oct 2022
- Rebalancing frequency: variable, average 4/year
- CAGR: 10.55 %
- Max Drawdown: 19.2 %
- Sharpe ratio: 0.91
- Maximum leverage: 1 (long only)
- Detailed tearsheet: Market State Decoder Balanced
Equity curve
Sampling of the equity curve is on a monthly basis.
This strategy evaluates a Sharpe ratio based score for each asset, then ranks the assets within the same category according to their scores, and invests in equal parts in the highest ranking assets in each category.
Assets are grouped in three categories: risky assets (for example equities), safe assets (for example government bonds), and risk-free assets (for example ultra short term government bonds). If there is no asset with a positive score in a given category, the corresponding part of the portfolio will be allocated to the highest ranking risk-free assets.
This strategy is the most broadly diversified of the Global Momentum family, and focuses on maximizing the predictability of the returns rather than the returns.
The main source of underperformance for this strategy is the same as for its “aggressive” variant: a lack of a clear trend across different asset classes. This stategy’s broader diversification helps in limiting the impact of this scenario.
Strategy details
- Asset classes: equities, REITs, corporate bonds, government bonds
- Number of assets: 25
- Backtest period: Jan 1998 - OCt 2022
- Rebalancing frequency: monthly
- CAGR: 10.93 %
- Max Drawdown: -16.83 %
- Sharpe ratio: 1.23
- Maximum leverage: 1 (long only)
- Detailed tearsheet: Global Momentum Defensive
Equity curve
Sampling of the equity curve is on a monthly basis.
This strategy evaluates a momentum based score for each asset, then ranks the assets within the same category according to their scores, and invests in equal parts in the highest ranking assets in each category.
Assets are grouped in three categories: risky assets (for example equities), safe assets (for example government bonds), and risk-free assets (for example ultra short term government bonds). If there is no asset with a positive score in a given category, the corresponding part of the portfolio will be allocated to the highest ranking risk-free assets.
The main advantage of this strategy is its ability to avoid major equity markets downtrends through diversification and momentum filtering.
The main source of underperformance for this strategy is the lack of a clear trend across different asset classes.
Strategy details
- Asset classes: equities, REITs, corporate bonds, government bonds
- Number of assets: 25
- Backtest period: Jan 1998 - Oct 2022
- Rebalancing frequency: monthly
- CAGR: 15.33 %
- Max Drawdown: 26.12 %
- Sharpe ratio: 1.14
- Maximum leverage: 1 (long only)
- Detailed tearsheet: Global Momentum Aggressive
Equity curve
Sampling of the equity curve is on a monthly basis.
Professionals prepare, amateurs react
This strategy evaluates the “state” in which each portfolio asset is in, and invests in the assets with the best upside outlook.
The “state” of an asset is a quantity determined from several parameters specific to each security, as: volatility, volumes, short and long term trends, correlations with other assets. Once the states have been determined, the portfolio is allocated to the securities with the highest state-wise rank.
The main advantage of this strategy is its ability to provide a significant improvement over the equity markets performance with a relatively low rebalancing frequency.
The main reason of underperformance for this strategy is a period in which the major equity indices continuously switch state (i.e. when equity markets move sideways).
There are three versions of this strategy; the one described on this page is named “defensive” as the allocations to each asset class can never reach 100% of the overall value of the portfolio.
Strategy details
- Asset classes: equities, REITs, corporate bonds, government bonds
- Number of assets: 10
- Backtest period: Jan 1998 - Oct 2021
- Rebalancing frequency: monthly
- CAGR: 10.0 %
- Max Drawdown: 16.18 %
- Sharpe ratio: 0.98
- Maximum leverage: 1 (long only)
- Detailed tearsheet: Market State Decoder Defensive Capped
Equity curve
Sampling of the equity curve is on a monthly basis.
There is nothing permanent except change - Heraclitus
This strategy evaluates the “state” in which each portfolio asset is in, and invests in the assets with the best upside outlook.
The “state” of an asset is a quantity determined from several parameters specific to each security, as: volatility, volumes, short and long term trends, correlations with other assets. Once the states have been determined, the portfolio is allocated to the securities with the highest state rank.
The main advantage of this strategy is its ability to provide a significant improvement over the equity markets performance with a relatively low rebalancing frequency.
The main reason of underperformance for this strategy is a period in which the major equity indices continuously switch state (i.e. when equity markets move sideways).
There are three versions of this strategy; the one described on this page is named “aggressive” as the allocations to one asset class can reach 100% of the overall value of the portfolio.
Strategy details
- Asset classes: equities, government bonds
- Number of assets: 6
- Backtest period: Jan 1998 - Oct 2022
- Rebalancing frequency: variable, average 4/year
- CAGR: 13.41 %
- Max Drawdown: -21.83 %
- Sharpe ratio: 0.95
- Maximum leverage: 1 (long only)
- Detailed tearsheet: Market State Decoder Aggressive
Equity curve
Sampling of the equity curve is on a monthly basis.
You can have your cake and eat it, too
The rationale of this strategy is based on the following hypothesis: on a monthly timescale, global equity markets either go up or down. This is obviously not true, but it is an approximation that is good enough to understand if we should allocate our capital to risk assets or to safe assets.
The main advantage of this strategy is the ability to limit big losses while harvesting returns when equity markets are stable.
The main risk of this strategy is the allocation percentage: when the confidence in the equity markets conditions is high, the strategy allocates 100 % of the portfolio to risk assets. This risk is mitigated by:
- Continuous checks on equity markets stability. If any of these checks fails, the strategy switches to safe assets.
- A conservative approach: the default allocation is to safe assets.
Strategy details
- Asset classes: equities, government bonds
- Number of assets: 3
- Backtest period: Jan 1998 - Oct 2022
- Rebalancing frequency: variable, average: 5.4/year
- CAGR: 16.95%
- Sharpe: 1.33
- Max Drawdown: 13.42%
- Maximum leverage: 1 (long only)
- Detailed tearsheet: Two Regimes
Equity curve
Sampling of the equity curve is on a monthly basis.
Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1. - Warren Buffett
The rationale of this strategy is rather simple: allocate most of the capital to safe assets (like cash or bonds) when times get rough, otherwise allocate more to risk assets (in this case stocks).
Strategy details
- Asset classes: equities, government bonds
- Number of assets: 3
- Backtest period: Jan 2003 - Oct 2022
- Rebalancing frequency: variable, average 9.5/year
- CAGR: 5.26 %
- Maximum drawdown: 11.71 %
- Sharpe ratio: 1.33
- Maximum leverage: 1 (long only)
- Detailed tearsheet: Target Volatility
Equity curve
Sampling of the equity curve is on a monthly basis.
