GEM Strategy Q3 2026 Performance Review

The Global Equity Momentum (GEM) strategy continues to be a benchmark for tactical trend-following. In this post, we review the GEM strategy results for 2026, analyzing how its absolute and relative momentum filters navigated the macroeconomic landscape, interest rate shifts, and global equity rotations.

Navigating Volatility

2026 presented unique challenges with shifting inflation data and central bank policy divergences. GEM's reliance on a 12-month lookback period meant that it avoided short-term whipsaws, maintaining exposure to the dominant equity trends. When US tech dominance showed signs of fatigue, the relative momentum filter proved crucial in capturing international outperformance.

Absolute Momentum in Action

During brief periods of global market correction, the absolute momentum filter (comparing equity returns against the risk-free rate) was tested. Because the T-Bill yield remained a competitive benchmark, the threshold for equities to remain invested was historically high. GEM successfully rotated to aggregate bonds when global equities failed to beat cash, protecting capital.

Final Performance Metrics

While exact daily figures vary depending on the specific ETF implementation (e.g., SPY vs VOO, or BND vs AGG), GEM provided a strong risk-adjusted return profile in 2026. By avoiding the deepest drawdowns of the year and participating in the strongest geographic rallies, it reaffirmed the power of systematic, rules-based investing.

"Dual momentum is the clean integration of relative strength momentum and trend following absolute momentum. They complement each other perfectly." — Gary Antonacci

The GEM Execution Rules

GEM is rebalanced exactly once per month. At the end of each month, the investor carries out the following steps:

1. Calculate the trailing 12-month return of S&P 500 (representing US stocks) and MSCI ACWI ex-US (representing global stocks).
2. Select the index with the higher return.
3. Compare the return of this winning index to the trailing 12-month return of 1-3 Month Treasury Bills (cash proxy).
4. If the winning equity return is greater than cash, invest 100% in that equity index. Otherwise, invest 100% in a broad U.S. Aggregate Bond index (like BND or AGG).

Why GEM Works

Historically, equities spend about 70-80% of the time in bull markets. Relative momentum keeps the investor aligned with the strongest equity markets (whether that's US tech stocks or international value plays). However, when severe bear markets emerge (such as the 2008 financial crisis or the 2000 dot-com crash), absolute momentum acts as a circuit breaker, moving the entire portfolio into high-quality bonds. This reduces drawdown risk and protects capital.

ETF Implementations

A typical retail investor can implement GEM using just three low-cost, liquid ETFs:

• US Stocks: Vanguard S&P 500 ETF (VOO) or SPDR S&P 500 ETF (SPY)
• International Stocks: Vanguard Total International Stock ETF (VXUS) or iShares Core MSCI ACWI ex U.S. ETF (ACWX)
• Aggregate Bonds: Vanguard Total Bond Market ETF (BND) or iShares Core U.S. Aggregate Bond ETF (AGG)