This almost doubling of the annual rate of returnВ over ACWI comes with a reduction in volatility of 2%.

вЂ¦Over this entire 40-year period, GEM has an average annual return ofВ 17.43% with a 12.64% standard deviation, a 0.87 Sharpe ratio, and a maximumВ drawdown of 22.7%. The way we do that is by first using relativeВ momentum to select the best-performing assetвЂ¦ We then apply absolute momentum as a trend-following filterвЂ¦вЂќДЇrom Chapter 8, вЂњGlobal Equities MomentumвЂќ (Pages 94, 103): вЂњDual momentum can take us from naive diversification to a dynamically adaptive asset allocation approach that keeps us better in tune with changing market regimes and less exposed to converging market correlations. вЂ¦The best approach is to use absolute and relative together in orderВ to gain the advantages of both.

вЂ¦The biggest advantageВ of absolute momentum over relative momentumвЂ¦is its ability toВ reduce dramatically portfolio downside vulnerability by exiting positionsВ early during bear markets. Smart beta investors mayвЂ¦be able toВ capture the same incremental returns from just a rebalanced stock/bond orВ sector portfolio.вЂќДЇrom Chapter 7, вЂњMeasuring and Managing RiskвЂќ (Pages 85, 87, 89): вЂњAbsolute momentum is roughly the same as relative momentum applied toВ an asset paired up with Treasury bills. вЂ¦Without discrimination, diversification can become вЂњdeworsification.вЂќ вЂ¦low-cost equity and fixed-income index funds, appropriately selected by dual momentum, are all that one needs for investment success.вЂќДЇrom Chapter 6, вЂњSmart Beta and Other Urban LegendsвЂќ (): вЂњRather than deal with all this complexity and uncertainty, forВ most investors, simply using traditional capitalization-weighted indexes isВ most likely a better approach. There are logical reasons why momentum works-and, in fact, there areВ plenty of them.вЂќДЇrom Chapter 5, вЂњAsset Selection: The Good, the Bad, and the UglyвЂќ (): вЂњTodayвЂ™s overemphasis on diversification often leads to mediocrity and unnecessary expense. These risks may even increase compared to similar portfolios using nonmomentum, buy-and-hold strategies.вЂќДЇrom Chapter 3, вЂњModern PortfolioВ Theory Principles and PracticesвЂќ (): вЂњWhile academics remained busy engineering more complex ways to model financial markets, simple momentum has stood the test of time as the premier market anomaly.вЂќДЇrom Chapter 4, вЂњRational and Not-So-Rational Explanations of MomentumвЂќ (): вЂњвЂ¦momentum is not just a 212-year flash in theВ pan. Also important is the fact that while relative strength momentum can enhance returns, it does little to reduce volatility or maximum drawdown. Using momentum with individualВ stocks also results in substantially higher transaction costs than applyingВ momentum to broad asset classes and indexes.

They therefore miss the potential risk-reducingВ benefits of cross-asset diversification. I wrote this book to help bridge the gap between the academic research on momentum, which is extensive, and its real-world applicationвЂ¦ I finally show how dual momentum-a combination of relative strength and trend-followingвЂ¦is the ideal way to invest.вЂќ Based on a survey of related research and his own analyses, he concludes that:ДЇrom Chapter 1, вЂњWorldвЂ™s First Index FundвЂќ (): вЂњAfter years of momentum research by many academics, even Eugene Fama and Kenneth French, two of the founders of EMH, began paying attention to momentum, which they called the вЂpremier anomaly.вЂ™ Momentum was powerful, persistent, and not explainable by any of the commonly known risk factors.вЂќДЇrom Chapter 2, вЂњWhat Goes UpвЂ¦Stays UpвЂќ (Pages 23-24): вЂњAll of these publicly available products apply relative strength momentumВ to individual stocks. вЂ¦the academic community now accepts momentum as the вЂpremier anomalyвЂ™ for achieving consistently high risk-adjusted returns.В Yet momentum is still largely undiscovered by most mainstream investors. This book shows how momentum investing can makeВ that desirable outcome a reality. In the preface to his 2015 book entitled Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk, author Gary Antonacci states: вЂњWe need a way to earn long-term above-market returns while limiting ourВ downside exposure.

Dual momentum investing strategy