Hi,
Wondering if any one combines the Dual Momentum strategy with stockopedia’s unique approach to classifying stock.
If yes, can you please explain how it’s performed and what you have learned from applying the strategy and anything like it.
thanks
The Stocko momentum rank combines relative and absolute momentum so any strategy that uses it could be considered to include "dual momentum". It's actually triple momentum as it includes earnings momentum, so even better.
I have been experimenting recently with a sort of Dual Momentum strategy applied to investment trusts, although it does not use Stockopedia's unique approach to classifying stocks.
With this experimental strategy, I only buy ITs that have a positive value of their %200 day moving average based on their share prices, but I take their discounts to Net Asset Value into consideration when selecting ITs. I add their % discounts to %200day share price MA and select the ITs with the highest values, provided they have bid-offer spreads less than 100 bps at the time. In doing this, I try to keep a reasonably diversified portfolio, so I would not buy several ITs in the same specialist sector. I sell any IT in the portfolio whose %200day share price MA goes negative, which means its share price has changed to a downward trend, regardless of its discount to NAV at the time.
I think this strategy should work better with ITs and funds than with individual stocks. This is because the share prices of stocks are so much more volatile than of ITs, so applying this strategy to individual stocks would cause excessive trading and transaction costs (in my opinion) which would reduce returns.
It is too soon to judge whether this strategy with ITs is likely to be better over the long term than any other strategy, as Chairman Mao said about the French Revolution.
One idea for combining Antonicci's Dual Momentum strategy with stockopedia’s unique approach to classifying stock would be to look at the previous 12 month return of the FTSE All Share Index. If this is higher than the Bank of England Base Rate, select a portfolio of UK stocks using high StockRanks or high Momentum Ranks or using Ed Croft's NAPS approach. If the the previous 12 month return of the FTSE All Share Index is less than the Base Rate, sell the stocks and leave the money in cash or put it in an ETF invested in short-term government bonds (Gilts).
This approach would mean one is invested in UK stocks when the index is trending upwards (with a good chance of outperforming the index due to Stockopedia's unique approach to classifying stock) and one would be out of equities during the greater part of any long-lasting bear markets. One would hope that this would reduce drawdowns during prolonged bear markets and increase returns during bull markets.
It may help if you explain exactly what you mean by dual momentum strategy. I did read about one which was based on S&P 500, international fund and bonds, which was based on the previous 12 months momentum. However that has not worked very well since 2009.
I think in the UK market 12 months is too long for individual stocks, you can see this from the NAPS folios. Best performing last year are rarely best performing the next year. Also indexes, performed well April 2020 to April 2021 but have not done so well since.
What works in the US markets, may not work in the UK markets, they are quite different, however if the US crashes it will take the UK down as well.
I do look at momentum, many of my buys are high momentum stocks, I tend to look at high QM stocks as they have performed the best according to Stockopedia.
I've done some back testing on this, it's on another thread, would be keen to get all of your thoughts if you would be so kind:
