Lazy Man’s Momentum Strategy

ByOddmund Groette Quantified Investment Strategies

The “Lazy Man’s Momentum Strategy” stands out for its simplicity. The rules are straightforward: every six months, the strategy looks at 22 country indices and buys the 11 with the highest 6-month return.

This is a strategy we first identified on Allocate Smartly, and we summarize it below.

At first glance, the historical data is compelling. From 1971 to the present, the strategy has significantly outperformed its benchmark (the All-Country World Index or ACWI) and an inverse version of itself, which holds the 11 countries with the lowest returns, in terms of both total return and risk-adjusted return.

Lazy man's momentum strategy
Lazy man’s momentum strategy
Lazy man's momentum strategy results
Lazy man’s momentum strategy results

The “Equal Weighting” Illusion

However, looking at long-term summary statistics can be deceiving. The sources suggest that much of this strategy’s outperformance did not come from its momentum signal but rather from equal weighting.

While the ACWI benchmark is cap-weighted (heavily dominated by the US, which currently makes up 63% of the index), the Lazy Man’s strategy allocates an equal amount to every country. Because even the “inverse” strategy, buying the worst performers, nearly matched the benchmark, it is clear that the structural shift away from cap-weighting was the primary driver.

It is also important to note that since 2008, equal weighting has been a “terrible idea” because the US has significantly outperformed the European countries that make up the bulk of this strategy’s 22-country pool.

Why It’s a “Non-Starter” for Modern Portfolios

When we look more closely at the evolution of performance, the strategy’s predictive power has disappeared in recent periods. Since mid-2000, the relative performance between the momentum strategy and its inverse has been flat. This means for the last 25 years, picking the “winners” has been no more predictive than a coin flip.

The sources highlight two major reasons why this specific model is currently ineffective:

1. Pure Relative Momentum: The strategy focuses only on the “best of the bunch,” regardless of whether those returns are actually positive.

2. Lack of Cash Filters: The analysis suggests results might improve if the strategy included absolute momentum, for example, allocating to cash if the 6-month return of a country index is negative.

The Importance of Deep Analysis

This study serves as a warning against relying solely on long-term backtests that may be skewed by early success. While the strategy looks great over a 50-year horizon, its failure to provide an edge over the last quarter-century makes it a “non-starter” for modern implementation.

When evaluating tactical strategies, it is vital to analyze how performance has evolved over time rather than just looking at the final number.

I’ve got an Msc from Heriot-Watt University, Edinburgh (1996), in addition a to a business administration degree the Norwegian School of Management (BI – 1994). Did my mandatory military service in between.

After university, I worked two years as an auditor (1996-1998).

I co-founded Aksjeforum.com in 1998/99 - one of the first websites about trading and investing in Norway. It was later acquired by Digi.no in 2001.

I have written 4 books about trading (in Norwegian). One of them has sold 30,000 copies, a record for a financial book in Norway.

From 2001 until 2018 full-time independent prop trader (Series 7 in 2001) and investor.

2018-today: Investor, writer, analyst.

Similar Posts