The results in this paper won’t surprise most who are regular readers, but the paper below does a nice job explaining things in a simple way. For more advanced asset allocation methods that use momentum one can check out past blogs on the subject here, here , and here.
Momentum Investing & Asset Allocation
This paper highlights the use of a new strategic approach within a quantitative investment methodology in the context of making prudent asset allocation decisions. Three asset classes will frame the dynamic asset allocation discussion: Equities, Fixed Income, and Hedge Funds. The quantitative methodology used is an evolution of J. Welles Wilder’s Relative Strength Index (RSI) first published in New Concepts in Technical Trading Systems . The sample portfolio that was analyzed over several market cycles has demonstrated greater compound returns with less volatility. The result is a set of strategies that yield better risk-adjusted returns to the broad equity markets, broad bond markets, and broad returns of hedge funds. In fact, the portfolios we analyzed delivered significantly higher risk adjusted returns across multiple market cycles.
A visual summary of the paper’s core results:
The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.
About the Author: Wesley Gray, PhD
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Important Disclosures
For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Third party information may become outdated or otherwise superseded without notice. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency has approved, determined the accuracy, or confirmed the adequacy of this article.
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