A Monthly Momentum Strategy In ETFs

Below is a very simple and easy strategy to implement:

  • It’s based on monthly quotes in the ETFs SPY, EEM and TLT.
  • Every month rank them based on last month’s performance and go long the best performing.
  • Hold for one month and repeat (or continue being long the same instrument).

This is all there is to it. Obviously this strategy is best performed in a tax deferred account, but without slippage and taxes the equity curves look like this:

The momentum strategy in SPY, EEM and TLT performs pretty well. Left axis is accumulated returns.

The strategy outperforms all the other ETF’s, despite underperming SPY in both 2018 and 2019.

How did the strategy perform lately during the Covid-19?

In January it was long EEM for a 4.14% loss. For February, March and April it was long TLT. May and June was long SPY. Total return for 2020 is 17.1%.

The strategy works for quarterly rebalancing, but not very well for anything shorter than monthly.

 

Disclosure: I am not a financial advisor. Please do your own due diligence and investment research or consult a financial professional. All articles are my opinion – they are not suggestions to buy or sell any securities.