Performance & Risk Metrics (2016-2026)
| Metric | Dual Momentum | Golden Butterfly |
|---|---|---|
| CAGR (10-Year Annualized Return) | 10.9% | 8.5% |
| Max Drawdown | -18.2% | -11.0% |
| Sharpe Ratio (Risk-Adjusted Return) | 0.62 | 0.68 |
| Strategy Type | Tactical Asset Allocation (Trend following) | Passive Portfolio (Factor Tilted) |
| Rebalancing Frequency | Monthly (on momentum signals) | Annually (fixed target weights) |
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.
Golden Butterfly Philosophy
Created by Tyler (PortfolioCharts), the Golden Butterfly evolves the Permanent Portfolio by adding a 20% slice of small-cap value stocks. The five equal slices (total market stocks, small-cap value, long bonds, short bonds, and gold) capture the historical value factor premium while maintaining broad economic resilience across prosperity, deflation, inflation, and recession.
Key Differences Explained
DM offers higher returns (10.9% vs 8.9%) through tactical momentum, while the Golden Butterfly provides steadier passive returns with its factor-tilted 5-asset split. The Golden Butterfly's higher Sharpe ratio (0.68 vs 0.62) suggests it delivers better risk-adjusted returns despite lower absolute performance.
- Strategy Type: DM is a tactical, actively-managed approach. Golden Butterfly is a passive, buy-and-hold approach.
- Return vs Risk: DM delivered 10.9% CAGR with -18.2% max drawdown (Sharpe: 0.62). Golden Butterfly delivered 8.9% CAGR with -15.0% max drawdown (Sharpe: 0.68).
- Maintenance: DM requires monthly signal monitoring. Golden Butterfly needs only annual rebalancing.
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
Golden Butterfly Strengths & Limits
- Higher returns than Permanent Portfolio via value factor tilt
- Better Sharpe ratio than most passive portfolios
- Maintains structural resilience across economic regimes
- Small-cap value can underperform for extended periods
- More complex than simple 60/40 with 5 asset classes
- Gold and long bonds can be volatile independently
Which Strategy is Right For You?
Choose DM if: You want maximum returns and don't mind monthly signal-following. DM's binary approach is simple yet effective for growth-oriented investors.
Choose Golden Butterfly if: You prefer a passive portfolio with academic factor exposure. The Golden Butterfly's small-cap value tilt captures documented premiums without requiring any market timing.
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.