The hybrid asset allocation strategy (HAA) has two components: an asset cross-sectional momentum strategy and a strategy with allocations to price series momentum and managed futures. Both strategies use ETFs to generate signals.
The asset cross-sectional momentum strategy (CSMOM) and the strategy with allocations to price series momentum and managed futures (MOMMF) generate signals in the monthly timeframe. The MOMMF strategy is rebalanced annually.
The current allocation is detailed below. Unlocking the protected content requires a subscription to HAA Signals, Market Signals, or All-in-One. After each month’s last trading day, you can check for updates here. Follow @priceactionlab on X for updates and announcements.
Last update: November 30, 2023, after the close of the market.
Performance of HAA (No leverage, backtest results, January 2, 2008–November 23, 2023)
Relative performance of CSMOM and MOMMF
The orange line shows the performance of the HAA with a 50% allocation to CSMOM and MOMMF.
Equity Performance (Backtest results, January 2, 2008–November 23, 2023)
The annualized return is 7.74% with a 10.2% maximum drawdown. The Sharpe ratio is 0.94. These results offer room for applying 2X leverage below.
The annualized return is 10.9%, with a 13.2% maximum drawdown. The Sharpe ratio is 0.94.
Q: Do you send notifications by email when the signals are updated at the end of each month?
A: We do not send email notifications when this page is updated. After each month’s last trading day, you can check for updates or follow @priceactionlab on Twitter.
Q: The CSMOM strategy is more profitable than the MOMMF strategy. Why not use only the former?
A: Below is a performance table for the two strategies and the allocation. (Backtest results, January 2, 2008–November 23, 2023)
|CSMOM||MOMMF||HAA (no leverage)|
With an equal allocation, we achieve the lower maximum drawdown with about the same low volatility as the MOMMF strategy but with a gain of 2% in annualized return. Since the future is unknown, without sufficient diversification, the CSMOM strategy could become unprofitable. The same can happen to the MOMMF strategy, but the HAA strategy has higher odds of minimizing losses. Therefore, we trade off the potential higher return from using just the CSMOM strategy for expected lower volatility with the HAA strategy.
Q: The first managed futures ETF was launched in 2011. What did you use in backups that started in 2008?
A: We use a more recently launched managed futures ETF, but in the backtests we used a price series for the index it is designed to track. We believe the results will be close enough. If the tracking error is large, we may replace that ETF with another one in the future.
Q: How do you rebalance the MOMMF strategy?
A: After the close of each year, we adjust the position value of the two ETFs, one for the stock market and the other for managed futures, according to the allocation defined in the strategy details. This normally involves selling shares of the ETF with a position value over its allowed allocation as a percent of equity and buying shares of the other ETF so that the allowed allocation is realized.
Q: Does the CSMOM strategy require annual rebalancing?
A: No, there is no annual rebalancing requirement for the CSMOM strategy. The strategy is dynamically rebalanced through signal generation in the monthly timeframe. The average holding period is about 6 months.
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