June 9, 2012

Introducing the Balanced Momentum Index

I am happy to introduce our multi-asset, rules-based Balanced Momentum Index (BMI) that incorporates both relative and absolute momentum. I was expecting to release a global momentum index. However, after careful consideration, I decided to first release a U.S. based index. The reason has to do with the steadily rising correlations between U.S. and foreign markets over the past 15 years.

Given the interconnectedness of world capital markets and globalization of the world's economies, for the past three years this correlation has remained steady at over .90. Furthermore, when markets drop, correlations typically go up even more, which is when it is least desirable for this to happen

Here are the comparison performance statistics from January 1984 through May 2012 for the BMI compared to a benchmark portfolio of 60% Russell 1000 index and 40% Barclays Capital U.S. Aggregate Bond index:

   BMI Balanced 60/40
Annual Return   14.06        10.13
Standard Deviation     8.18          9.82
Max Drawdown -12.85      -32.29
Sharpe Ratio     1.13          0.58

Maximum drawdown is on a month-end basis. BMI uses relative and absolute momentum applied to the following indices: Russell 1000, NAREIT Equity REIT, Barclays Capital U.S. Treasury 20+ Year, Bank of America Merrill Lynch U.S. Cash Pay High Yield, and Bank of America Merrill Lynch 3 Month U.S. Treasury Bill.  January 1984 was chosen as the BMI start date because the High Yield bond index began that year.

Results are hypothetical, are NOT an indicator of future results, and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Please see our Disclaimer page for more information..