Double Momentum Investing

Conclusions

Definition of the strategy

With the Double Momentum Investing (DMI) strategy, for two ETF’s/funds, we compare the prices of the previous day with the price x market days (the interval) earlier. The intervals used are separately calculated for each ETF. If for one or both of these ETF’s, the market price the previous day is equal to or higher than the reference price, we buy or keep the ETF with the biggest price difference; if it is lower for both ETF’s we sell the ETF or stay in cash. The intervals used, are the optimal intervals for the combination of ETF’s in up to ten years preceding to the investing decision.

In our analysis we used the Nasdaq and the ‘Physical gold and silver Trust’ as underlying ETF’s/funds.

Summary of the numbers

CAGR average CAGR minimumCAGR maximum
DMI 1 year12.0-26.279.9
Nasdaq 1 year12.4-48.683.0
Gold/Silver 1 year9.7-36.763.8
DMI 3 year11.2-16.538.1
Nasdaq 3 year9.7-27.542.4
Gold/Silver 3 year6.7-22.233.1
DMI 5 year11.1-3.434.7
Nasdaq 5 year9.5-9.738.0
Gold/Silver 5 year5.9-10.325.6
DMI 10 year11.58.019.8
Nasdaq 10 year7.5-5.017.1
Gold/Silver 10 year7.1-1.521.8
Return of DMI strategy, Nasdaq and Gold/Silver Trust for up to 25 investingperiods of 1,3,5 and 10 years

Results

With a small exception for one-year periods, for all investment periods, the average CAGR of the DMI strategy is higher than the CAGR of the underlying ETF’s/funds .

For all investment-period-lenghts, the minimum return is higher for the DMI strategy than for both of the underlying ETF’s/funds. For investment periods of ten years the minimum CAGR for the strategy is an astonishing 8%. This is a remarkebly good result since in these ten-year periods, we have at least one period which include the bear market after the dotcom bubble, as well as the bear market during the financial crisis.

For whom?

As expected, an investing horizon of at least five years is best. If it is lower, for example three years, backtesting for the previous 25 years still shows some three-year periods with important negative returns.

In our DMI analysis we used the Nasdaq as one of the underlying ETF’s, whereas for SMI we used S&P500. Nasdaq has had higher returns the last 25 years compared to the S&P500, but higher volatility as well. This is the reason why the minimal return for the 5-year periods is -3.4% for the DMI strategy while it is -0.4 for SMI.

In comparison with SMI, the DMI strategy based on Nasdaq and Gold/Silver Trust, is a good strategy for investors who accept a little more down side risk. Over long investment periods they will get far better results.

We demonstrated, with this strategy it is not necessary to check your investments every day. Results of backtesting suggest the returns remain excellent if we use control periods of up to 14 market days