Performance & Risk Metrics (2016-2026)
| Metric | Dual Momentum | Adaptive Asset Allocation |
|---|---|---|
| CAGR (10-Year Annualized Return) | 10.9% | 11.5% |
| Max Drawdown | -18.2% | -19.8% |
| Sharpe Ratio (Risk-Adjusted Return) | 0.62 | 0.71 |
| Strategy Type | Tactical Asset Allocation (Trend following) | Tactical Asset Allocation (Momentum + Volatility) |
| Rebalancing Frequency | Monthly (on momentum signals) | Monthly |
DM Philosophy
Dual Momentum simplifies trend following to a single binary signal: is the S&P 500's trailing 12-month return greater than T-Bills? If yes, invest 100% in US stocks. If no, rotate entirely to bonds. This removes the international equity component, sacrificing diversification for maximum execution simplicity.
Adaptive Philosophy
The Adaptive Allocation strategy dynamically adjusts weights across multiple asset classes based on recent momentum and volatility. Unlike fixed-weight portfolios, it increases allocation to trending assets while reducing exposure to volatile or weakening ones. This creates a continuously evolving portfolio that adapts to changing market conditions.
Key Differences Explained
Both are tactical strategies but with very different complexity levels. DM uses a single binary signal (US stocks vs bonds), while Adaptive dynamically adjusts weights across multiple assets using momentum and volatility metrics. The Adaptive strategy's sophistication produces a higher Sharpe ratio (0.78 vs 0.62) and lower drawdowns (-15.3% vs -18.2%).
- Strategy Type: DM is a tactical, actively-managed approach. Adaptive is a tactical, actively-managed approach.
- Return vs Risk: DM delivered 10.9% CAGR with -18.2% max drawdown (Sharpe: 0.62). Adaptive delivered 11.5% CAGR with -15.3% max drawdown (Sharpe: 0.78).
- Maintenance: DM requires monthly signal monitoring. Adaptive requires monthly signal monitoring.
Side-by-Side Pros and Cons
DM Strengths & Limits
- Simplest possible momentum system — single binary signal
- Only requires two ETFs to implement
- Easiest to automate and follow consistently
- Misses international equity rallies entirely
- No global diversification
- Same whipsaw vulnerability as GEM
Adaptive Strengths & Limits
- Dynamically adapts to changing market regimes
- Multi-asset diversification with momentum overlay
- Volatility-weighting reduces exposure to turbulent assets
- Most complex strategy to implement
- Higher turnover means more taxable events
- Can underperform in sudden V-shaped recoveries
Which Strategy is Right For You?
Choose DM if: You want the absolute simplest momentum system. DM's single signal and two-ETF implementation can't be beaten for ease of execution.
Choose Adaptive if: You don't mind more complexity for better risk-adjusted returns. The Adaptive strategy's multi-asset, volatility-weighted approach provides smoother performance.
Deep Dive
Want to master this strategy? Read our definitive Guide to Momentum Investing to understand the core rules, historical performance, and exact ETF implementations.