What is Dual Momentum (GEM) — Rules and Method

Two kinds of momentum

Momentum is the tendency of assets that have risen recently to keep rising for a while. Dual Momentum uses that idea twice.

Absolute momentum asks whether an asset is beating its own past and the risk-free rate. Relative momentum compares candidates and picks the stronger one. The first decides whether to be in the market at all; the second decides where.

Four assets

US equities (SPY), world equities excluding the US (VEU), US aggregate bonds (BND), and US short-term treasuries (SHY) as the hurdle.

The original author specifies the S&P 500, MSCI ACWI ex-US and Barclays US Aggregate Bond indices, with US T-bills as the hurdle. Indices cannot be bought directly, so we calculate with matching ETFs. We use VEU rather than a developed-markets-only fund because the index the author names includes emerging markets.

Order matters — absolute comes first

At each month-end close we compute 12-month total returns and run two steps.

First: is the 12-month return of US equities above that of short-term treasuries? If not, the month goes 100% to bonds (BND) and stops there.

Second: if it passes, compare US and non-US equities and put 100% into whichever is higher. The allocation is always a single asset.

The order is not cosmetic. Applying relative momentum first genuinely changes the answer in some months. In his FAQ the author notes that when only US and non-US equities are used, as in GEM, it is better to apply absolute momentum first — and that is the order we follow.

How it differs from the other two

GEM looks at a single 12-month return. It does not use a composite score like the 13612W that VAA and DAA rely on, which makes it the simplest of the three and the slowest to change its signal.

The trade-off is reaction time. GEM can stay in equities well into a decline as long as the 12-month return still clears the hurdle. VAA, in the same month, may already have moved to defence.

Reading it on this site

The signal page for the current month puts the result of the rule at the top: which asset was selected, whether the month is risk-on or defensive, and a one-line reason for it.

Below that, the bar table shows the 12-month returns of all four assets together. Seeing where short-term treasuries sit makes the absolute momentum test easy to read off the chart rather than take on trust.

How the signal has moved recently is shown in a twelve-month timeline, and each month in that list links to an archive page where the calculation for that month is kept exactly as it was published.

Worth knowing

This page explains a rule. It is not advice to buy or sell anything. We run the calculation; the decision and its consequences are yours.

The book and the author's site report results over past periods. We do not reproduce those figures — we have not verified them, and such numbers shift with the assumptions behind them.

The rule rebalances monthly, so following it incurs trading costs and taxes. Neither is included in what you see here.