Global Equity Momentum (GEM): Strategy, Rules, ETFs & Backtest

Global Equity Momentum (GEM) is one of the most celebrated and thoroughly researched quantitative models in existence. Developed by Gary Antonacci in his award-winning 2014 book Dual Momentum Investing, this strategy offers a simple yet incredibly powerful method for capturing market upside while severely limiting drawdowns during bear markets.

What is Dual Momentum?

Antonacci's breakthrough was combining two distinct forms of momentum into a single, unified framework:

• Relative Momentum: Compares two or more assets to see which has performed better. In GEM, we compare US Equities (S&P 500) and International Equities (MSCI ACWI ex-US) over the trailing 12 months, and allocate to the winner. This captures the geographic cycles of equity leadership.
• Absolute Momentum (Trend Following): Compares the leading asset against a risk-free rate (cash/T-bills). If the winning equity index hasn't outperformed cash over the trailing 12 months, absolute momentum is negative. This triggers a safety filter, shifting 100% of the portfolio into Aggregate Bonds.

"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)