Long-Only Multi-Asset Momentum: Searching for Absolute Returns

Abstract

The forward perspectives for the 60/40 portfolio have deteriorated, since secular tailwinds (that have benefited equities) are fading and stock-bond correlation may become positive. For this reason, allocating to uncorrelated strategies seems rational. In this paper we develop a long-only multi-asset momentum strategy that shows attractive risk-adjusted returns and the ability to generate positive returns on a rolling basis, while having low correlation with traditional portfolios. The strategy is based on a robust approach that considers several momentum measures and formation periods. It can be used in a standalone basis or combined with a 60/40 portfolio, generating higher returns with lower volatility and a fraction of the drawdowns.

Keywords: absolute returns, multi-asset momentum, trend-following, 60/40 portfolio, tactical asset allocation

JEL Classification: G10, G11, G15