Although I practice systematic trading based on strategies that generate short holding periods I keep an open mind towards other styles of trading. One particular style of trading that has caught my attention recently is ETF momentum systems that require work on only one day per month. Using information from a paper written by Adam Butler, Michael Philbrick, Rodrigo Gordillo and David Varadi titled Adaptive Asset Allocation: A Primer plus rules from Gary Antonacci’s soon-to-be-released book, Dual Momentum Investing: An Innovative Strategy For Higher Returns With Lower Risk, I created my own ETF momentum strategy. The chart below is based on reallocating (if necessary) at the beginning of each month to five ETF’s based on the prior six month price performance of the ETF’s.
The caveat about this type of system is its partial reliance on bond prices increasing as interest rates fall which they have for the past thirty years. I believe this concern is warranted but Antonacci provides a means of taking falling bond prices into account.
If this type of investing is of interest to you I would encourage you to download the paper and order the book. Create your own model and, who knows, you may design a system that’s even better than mine. One parameter that you may want to vary is the look back period for prior price performance. The common periods are 3 months, 6 months and 12 months.