8 Replies Latest reply on Jun 23, 2017 10:11 AM by ochotona

    Gary Antonacci's "Global Equities Momentum" (GEM) Portfolio implemented in my Schwab IRA

    ochotona Active Contributor

      Since September 2015 when we had that sharp, scary market decline, I have thought a great deal about how to use momentum to generate and preserve wealth. I have read papers and books by Gary Antonacci and Meb Faber. I find them both quite similar, but I think Gary's thinking and writing on the topic is more clear, and his model and measurements are simpler, so given that the results are similar (which is to say, amazing), I say apply Occam's Razor and go with simpler.

       

      The basic Antonacci GEM portfolio simply rolls back and forth between three asset classes which are represented by three mutual funds or ETFs which trade for free at Schwab: Schwab® S&P 500 Index Fund SWPPX, SPDR® MSCI ACWI ex-US ETF CWI, and Schwab U.S. Aggregate Bond ETF SCHZ. The rule is... pick the strongest of the two equity funds based on the 1 year total return. Evaluate once a month, not any more frequently, but do evaluate once a month even if there is no trade. If returns are less than the 90 day T-Bill rate, go to the bond fund.

       

      Lately, Gary has abandoned his sector momentum trading approach. In the light of more data, he finds it is not worth it. He only trades three funds in his public domain model (the one described in his book).

       

      We can model some really cool 1999-2016 results using actual live Schwab mutual funds SWPPX, SWISX, and SWLBX (not theoretical indices)

       

      Screenshot from 2016-12-31 06-44-41.png

      Figure: 1999-2016 GEM results using Schwab mutual funds, before the days of ETFs. Dual Momentum calculations by portfoliovizualizer.com

       

       

      GEM using Schwab mutual funds SWPPX, SWISX, and SWLBX, 1999-2016

       

      CAGR 8.28%

      Std Dev 11.08%

      Maximum drawdown -23.01%

      Sharpe ratio .61

      Sortino ratio  .96

       

      100% US equities (SWPPX), 1999-2016

       

      CAGR 5.28%

      Std Dev 14.90%

      Maximum drawdown -50.73%

      Sharpe ratio .30

      Sortino ratio .43

       

      60/40 (SWPPX/SWLBX), 1999-2016

       

      CAGR 4.34%

      Std Dev 6.82%

      Maximum drawdown -5%

      Sharpe ratio .64

      Sortino ratio 1.09

        • Re: Gary Antonacci's "Global Equities Momentum" (GEM) Portfolio implemented in my Schwab IRA
          panther Elite Contributor

          I'll look forward to your results with this method.  Thanks for posting it.

            • Re: Gary Antonacci's "Global Equities Momentum" (GEM) Portfolio implemented in my Schwab IRA
              ochotona Active Contributor

              As of June 1, the model went to All Country World Index (ACWI) ex-US. I simply bought the CWI ETF, which trades for free at Schwab. SWI is beating SWPPX (S&P500 mutual fund) for 1-year total return, that signaled the switch.

                • Re: Gary Antonacci's "Global Equities Momentum" (GEM) Portfolio implemented in my Schwab IRA
                  panther Elite Contributor

                  You have been following this method for more than a year now.  Are you pleased enough that you think you will continue for another year?  What kind of return has this method given you?

                    • Re: Gary Antonacci's "Global Equities Momentum" (GEM) Portfolio implemented in my Schwab IRA
                      ochotona Active Contributor

                      From 1/1/16 to 6/2/2017,

                       

                      GEM     11.56% CAGR, 11.6% standard deviation, -3.5% max drawdown, 3.26 Sortino ratio, US market correlation 0.81

                       

                      S&P500 14.7% CAGR, 14.7% standard deviation, -6.5% max drawdown, 3.11 Sortino ratio, US market correlation 1.00

                       

                      The return is less, but acceptable. The risk-adjusted return and volatility are better as measured by the other statistics. I'm 56, and I'm trying to avoid devastating pre-retirement sequence of returns loss.

                       

                      But truly, it's too early to see the benefit of the strategy. It should get me out of the next bear market shortly after it begins, and get me back in shortly after it ends. This is not prediction. This is following or lagging.

                       

                      But because of the mathematics of loss, "you need 100% gain to make up for a 50% loss", you come out way ahead throughout a full bull-bear market cycle, or so it has been since the early 1970s through the 2008 GFC.

                       

                      Ask me again after the next bear market ends? In the 2020s?

                        • Re: Gary Antonacci's "Global Equities Momentum" (GEM) Portfolio implemented in my Schwab IRA
                          panther Elite Contributor

                          I am looking at much sooner than that, maybe from July option expiration to the fall (Septemberish), then a bounce up to the beginning of November, and then a much steeper decline that will take us to February 2018.  But who really knows.  I might be all wet. While the indexes are presently up, there is an underlying sickness with many stocks.  Your method should cushion you to some degree. I tend to be something of a permabear, and I am seeing so many stocks trading at levels their earnings and debt levels do not justify.

                            • Re: Gary Antonacci's "Global Equities Momentum" (GEM) Portfolio implemented in my Schwab IRA
                              ochotona Active Contributor

                              I hope to have less than 1/2 of the S&P500 drawdown. I'm only 60/40 now anyway, and the 60% is GEM, and there is a lot of drawdown reduction with GEM. If I could walk away -15% loss from the peak, that would be great. Then when I'm out of equities, I will go short. Probably short NASDAQ, China, or REIT. Or all three. 25% short, 50% bonds, 25% cash, something like that.

                               

                              Screenshot from 2017-06-03 21-25-34.png

                                • Re: Gary Antonacci's "Global Equities Momentum" (GEM) Portfolio implemented in my Schwab IRA
                                  ochotona Active Contributor

                                  SWISX Schwab International Index Mutual Fund (developed economies, no emerging) is now beating CWI SPDR® MSCI All County World Index ex-US ETF on a 12-month look-back basis, was not the case at the end of May. On July 3 I just might move from CWI to SWISX. Much lower fees, and frankly I'm concerned about ETF tradeability during a crisis day... the bid/ask spread. Why not just wait until after the close and get the true NAV, and you can buy fractional shares down to the penny.

                      • Re: Gary Antonacci's "Global Equities Momentum" (GEM) Portfolio implemented in my Schwab IRA
                        ochotona Active Contributor

                        An important finding is that Antonacci's original plan to go to aggregate bonds (US total bond market) in case of emergency is flawed. The result is better if you go to US Intermediate Treasury Bonds (SCHR for example) when you get the equities sell signal. During the 2008-2009 bear market, aggregate bonds themselves contributed to the drawdown. Interestingly, going to long bonds (TLO) was not better than intermediate bonds (SCHR). Intermediate was a sweet-spot, ~5 year duration.