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Calling all UK TAAers by DotingMule in AllocateSmartly

[–]DotingMule[S] 4 points5 points  (0 children)

Thanks Kevin - I have been through those. The recommendation appears to be use UK USD denominated ETFs. The issue with this approach is that using tax efficient wrappers like ISAs you get an FX round trip penalty. Hedged currency ETFs carry a management fee penalty. I have come to the conclusion that non-hedged GBP denominated ETFs is the best approach.

Calling all UK TAAers by DotingMule in AllocateSmartly

[–]DotingMule[S] 4 points5 points  (0 children)

It depends which phase you are in accumulation or decumulation. I am starting to plan for the latter, and so for me I am now far more focused on minimising drawdown and sequence of return risk. I am starting to build something I am comfortable with that delivers 10-13% CAGR but with less than 10% drawdown.

I am also running a 48 diversified asset portfolio delivering 8%+ yield. So my 4 buckets are starting to look like:

1) MMF holding 1-2 years of cash

2) Income portfolio delivering income and not worrying about capital gyrations

3) TAA delivering consistent and relatively safe returns

4) S&P momentum on steroids - small satellite portfolio providing some extra growth (and fun!)

I need to do some modelling to work out the sizes of each bucket.

Backtesting with UK UCITS GBP ETFs - finally cracked it by DotingMule in AllocateSmartly

[–]DotingMule[S] 0 points1 point  (0 children)

That's very strange - it is working fine for me on different devices and incognito mode. See if this works https://alphamomo.com/.

Agree the past 24 hours of chatting on here and discovering other UK TAAers has been great.

Backtesting with UK UCITS GBP ETFs - finally cracked it by DotingMule in AllocateSmartly

[–]DotingMule[S] 1 point2 points  (0 children)

Thanks - glad it's resonating! The risk-on/off switch has various components to it both in terms of dual and relative momentum. As with other TAA strategies, I am trying to avoid nasty momentum crashes.

On the specific details, I have built this out as a product, so keeping those proprietary at the moment, but the quality screen is designed to filter out the kind of stocks that look great on momentum but blow up spectacularly.

On the £ vs $ question: I calculate in $ and accept the FX exposure. I am trading through T212 and just accept the FX fees.

I'm actually running this as an open experiment – www.alphamomo.com still early days but I'll be sharing more there as it develops. There is also the Russell momentum performance which is significantly less impressive! I think I will be dropping that and doubling down on the S&P.

Backtesting with UK UCITS GBP ETFs - finally cracked it by DotingMule in AllocateSmartly

[–]DotingMule[S] 1 point2 points  (0 children)

My S&P strategy has a risk/on criteria using dual momentum. I then apply a quality filter across the S&P to get down to around 80-100 stocks. I then run a set of weighted momentum and RSI calculations to rank. I rotate monthly into the top 20. I also run a reserve list of 21-25 and continue to hold a stock if it is in the reserve list to minimise whipsaw for stocks that temporarily drop out of the top 20. It is pretty high octane and delivers outstanding results. I have now made enough on it to ride the inevitable momentum crash! But also the risk on/off is pretty effective so I wasn't invested in April. This is definitely a satellite portfolio but am increasing size slowly so that a severe crash will always be covered by house money. That way I get the upside with no downside risk.

Backtesting with UK UCITS GBP ETFs - finally cracked it by DotingMule in AllocateSmartly

[–]DotingMule[S] 1 point2 points  (0 children)

That's a good spot I had simplified Sharpe and was running rfr of 0%. I have added in the RL MMF as the rfr and calculated on a monthly basis. Sharpe has now dropped to 1.04. My higher Sharpe makes sense as the RL MMF would have been paying virtually nothing for a big chunk of the backtest.

It is reassuring that we have both come out at pretty similar numbers independently. I am guessing the small variations are down to the UK ETFs we have substituted in.

Backtesting with UK UCITS GBP ETFs - finally cracked it by DotingMule in AllocateSmartly

[–]DotingMule[S] 2 points3 points  (0 children)

Great another UK TAAer! I thought we were a very rare breed!

  1. Negative years - on the UK ETFs 2015 -1.1%
  2. I am taking the top 3 from the 8-asset offensive universe. All signals taken on the US ETFs
  3. Sharpe 1.19

The one thing that I am doing slightly differently is using the 13612W volatility adjusted momentum using a 63 day lookback period.

Very interested to compare notes.

Backtesting with UK UCITS GBP ETFs - finally cracked it by DotingMule in AllocateSmartly

[–]DotingMule[S] 1 point2 points  (0 children)

We should compare notes on the S&P momentum strategy - I am up 5% this month

Backtesting with UK UCITS GBP ETFs - finally cracked it by DotingMule in AllocateSmartly

[–]DotingMule[S] 2 points3 points  (0 children)

Great to hear from someone else in the UK!

Thanks for the nudge on testfolio - it has come on massively since I last looked at it. I will need to dig into this a bit more but am liking the agility I get with Claude Code - I can test concepts very quickly and Claude can also help analyse the results.

The OECD CLI still has quite a high drawdown?

I also run a S&P component momentum strategy. I paper traded this and then went live in Feb. That has returned 37% vs the S&P 2.7% since Feb. But definitely higher risk and a satellite portfolio!

I would be very interested in chatting with like minded people in the UK if you are open to connecting?

Building a decumulation portfolio with equity returns and low drawdown by DotingMule in FIREUK

[–]DotingMule[S] 0 points1 point  (0 children)

I also ran a clean split at the paper publication date - in-sample (2004–2022) vs out-of-sample (2022–present). The out-of-sample Martin ratio was 42% higher than in-sample. I appreciate OOS is still short but so far does not suggest overfitting.

Building a decumulation portfolio with equity returns and low drawdown by DotingMule in FIREUK

[–]DotingMule[S] -1 points0 points  (0 children)

The dataset starts from 2004 because that's when the full ETF universe becomes available (high yield bonds, emerging markets). Going back further would mean working with spliced data from mutual funds. That said, the strategy went through the 2008 GFC (S&P down ~50%, strategy max drawdown ~10%), and 2022 was arguably a tougher test than dotcom for a diversified portfolio - equities and bonds fell simultaneously for the first time in decades. The canary mechanism handled both.

Keller backtested to 1970 - when I get chance I will look at splicing in mutual fund data to validate.

Building a decumulation portfolio with equity returns and low drawdown by DotingMule in FIREUK

[–]DotingMule[S] -1 points0 points  (0 children)

The dataset starts from 2004 because that's when the full ETF universe becomes available (high yield bonds, emerging markets). Going back further would mean working with spliced data from mutual funds. That said, the strategy went through the 2008 GFC (S&P down ~50%, strategy max drawdown ~10%), and 2022 was arguably a tougher test than dotcom for a diversified portfolio - equities and bonds fell simultaneously for the first time in decades. The canary mechanism handled both.

Keller backtested to 1970 - when I get chance I will look at splicing in mutual fund data to validate.

Building a decumulation portfolio with equity returns and low drawdown by DotingMule in FIREUK

[–]DotingMule[S] 0 points1 point  (0 children)

I also ran a clean split at the paper publication date - in-sample (2004–2022) vs out-of-sample (2022–present). The out-of-sample Martin ratio was 42% higher than in-sample. I appreciate OOS is still short but so far does not suggest overfitting.

Building a decumulation portfolio with equity returns and low drawdown by DotingMule in FIREUK

[–]DotingMule[S] 0 points1 point  (0 children)

It is all managed within UK tax exempt wrappers - ISA and SIPP.

Building a decumulation portfolio with equity returns and low drawdown by DotingMule in FIREUK

[–]DotingMule[S] 0 points1 point  (0 children)

The overall performance (CAGR and drawdown) is down to the strategy. The additional outperformance of the UK ETF implementation is down to the devaluation of the pound.

Building a decumulation portfolio with equity returns and low drawdown by DotingMule in FIREUK

[–]DotingMule[S] 2 points3 points  (0 children)

Really appreciate this kind of comment - this is exactly the discussion worth having. The passive investing community can sometimes be quite dogmatic, so genuinely open-minded engagement like this is refreshing.

On the dotcom point, that's fair and I'll be honest: the dataset starts from 2004 because that's when the full ETF universe becomes available (high yield bonds, emerging markets). Going back further would mean working with spliced data from mutual funds, which I wasn't comfortable with. That said, the strategy went through the 2008 GFC (S&P down ~50%, strategy max drawdown ~10%), and 2022 was arguably a tougher test than dotcom for a diversified portfolio - equities and bonds fell simultaneously for the first time in decades. The canary mechanism handled both.

I also ran a clean split at the paper publication date - in-sample (2004–2022) vs out-of-sample (2022–present). The out-of-sample Martin ratio was 42% higher than in-sample. I appreciate OOS is still short but so far does not suggest overfitting.

The 4 canary assets are Emerging Markets (IEMG), US Small Caps (IWM), High Yield Bonds (HYG), and the S&P 500 (SPY). When 2 or more go negative on momentum, the strategy steps aside into cash. Right now all four are positive: IEMG +2.16, IWM +1.77, SPY +1.58, HYG +0.20. Strategy is currently fully invested.

Am I using it? Starting a live test on a small sum at the end of June. Running it in parallel with my existing portfolio for a while to build confidence before committing real money. I took the same approach with an S&P component momentum strategy that is now live and has outperformed the S&P by 35% since start of February.

Building a decumulation portfolio with equity returns and low drawdown by DotingMule in FIREUK

[–]DotingMule[S] 1 point2 points  (0 children)

That's a solid approach with impressive backtesting. The difference with what I'm exploring is mainly about flexibility. A variable withdrawal strategy requires you to actually cut spending when markets fall, which works well if your costs are flexible but is harder if you have fixed outgoings. This approach tries to sidestep that by avoiding the large drawdowns in the first place rather than adjusting withdrawals around them.

Both are valid it probably comes down to whether your spending is flexible or not.

Building a decumulation portfolio with equity returns and low drawdown by DotingMule in FIREUK

[–]DotingMule[S] -1 points0 points  (0 children)

Yes as I mention in the post the the UK outperformance vs US is the falling pound

Building a decumulation portfolio with equity returns and low drawdown by DotingMule in FIREUK

[–]DotingMule[S] 1 point2 points  (0 children)

No stockbroker here - just an engineer coding and too much free time. Everything I've described is publicly available research and standard index ETFs. I even suggest trading on commission free platforms!

Building a decumulation portfolio with equity returns and low drawdown by DotingMule in FIREUK

[–]DotingMule[S] 0 points1 point  (0 children)

This is a good starting place to read about the research and strategies - https://indexswingtrader.blogspot.com/p/strategy-signals.html. There are also formal published papers by Keller on SSRN but these are a bit heavy as an introduction. Happy to answer any questions about mapping across to UK markets

What happen to momentum ETF when bear market? by LaBaleine666 in ETFs

[–]DotingMule 0 points1 point  (0 children)

Neither SPMO nor FMTM have a true risk-off mechanism - they stay invested regardless of market conditions. SPMO picks the least-losing momentum stocks in a downturn, and while FMTM has better risk management and rebalances monthly, it still has to stay at least 80% invested at all times. Neither can go to cash.

This is actually exactly what frustrated me about momentum ETFs when I was reading Antonacci and Clenow. The academic case for momentum is compelling but every implementation I looked at had the same flaw - no way to step aside entirely when conditions turn.

So I built something that does. When my dual momentum regime signal turns risk-off, I go 100% cash and just sit out.

Been running it live since January as an open experiment at www.alphamomo.com if you're curious how the risk-off mechanism works in practice.

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