Accelerating Dual Momentum (ADM): Faster Signals, Better Protection
Gary Antonacci's Dual Momentum strategy — published in his 2014 book — demonstrated that combining relative momentum (which asset is strongest?) with absolute momentum (is the strongest asset trending positively?) could produce strong risk-adjusted returns with simple monthly rebalancing.
Accelerating Dual Momentum (ADM) takes this foundation and refines it. Developed by practitioners who recognized that the original GEM strategy could be improved with faster signals and a broader asset universe, ADM addresses several of GEM's practical limitations while preserving its core strengths.
How Classic Dual Momentum (GEM) Works
Before understanding ADM, it helps to recap Gary Antonacci's Global Equities Momentum (GEM):
- Compare 12-month returns of U.S. equities (SPY) vs. international equities (EFA)
- Select the one with higher relative momentum
- If the selected asset has positive absolute momentum (return above T-bills over 12 months), invest 100% in it
- If absolute momentum is negative, invest 100% in bonds (AGG)
GEM is elegant in its simplicity — three assets, one comparison, one filter, one trade per month. It has produced strong long-term returns with significant drawdown reduction compared to buy-and-hold equity investing.
GEM's Limitations
Despite its strong track record, GEM has several practical limitations that ADM addresses:
- Slow signal: The 12-month lookback is relatively slow to detect trend changes. During the 2008 crisis, GEM did not move to bonds until several months of decline had already occurred.
- Narrow universe: Only three assets (U.S. equities, international equities, bonds) limits diversification opportunities.
- Single defensive asset: Using aggregate bonds (AGG) as the sole defensive asset means poor protection during rising-rate environments (as demonstrated in 2022).
- Binary allocation: 100% in one asset at all times creates concentration risk and potentially large whipsaw losses.
How ADM Improves the Framework
Faster Signal with Composite Momentum
ADM replaces the single 12-month lookback with a composite momentum score that typically weights shorter and longer periods. A common formulation averages the 1-month, 3-month, 6-month, and 12-month returns:
Composite Score = (R1 + R3 + R6 + R12) / 4
This composite responds more quickly to trend changes than a pure 12-month lookback because the shorter periods (1-month, 3-month) detect deterioration earlier. At the same time, the 12-month component maintains sensitivity to longer-term trends, reducing whipsaw from short-term noise.
During the 2008 crisis, this composite signal would have moved to defensive positioning approximately 1-2 months earlier than the pure 12-month signal — potentially avoiding an additional 10-15% of the decline.
Expanded Asset Universe
ADM typically expands the offensive universe beyond just U.S. and international equities to include:
- U.S. large cap (SPY)
- U.S. small cap (IWM)
- International developed (EFA)
- Emerging markets (EEM)
- Real estate (VNQ)
The strategy ranks all assets in the offensive universe by composite momentum and invests in the top-ranked asset (or top 2-3, depending on the variant). This broader universe captures opportunities that the original GEM misses — for example, the strong emerging market rally of 2017 or the real estate outperformance of early 2021.
Dynamic Defensive Asset
Instead of defaulting to aggregate bonds (AGG) when absolute momentum is negative, ADM ranks a defensive universe by momentum and selects the best-performing defensive asset:
- Short-term Treasuries (BIL or SHV)
- Intermediate Treasuries (IEF)
- Long-term Treasuries (TLT)
- Aggregate bonds (AGG)
This dynamic selection solved the 2022 problem before it happened. When long-term bonds were declining in 2022, ADM's momentum ranking would have selected short-term Treasuries — the only bond category generating positive returns — rather than holding AGG or TLT as a fixed defensive position.
Performance Characteristics
ADM's enhancements produce meaningful improvements over classic GEM:
| Metric | Classic GEM | ADM |
|---|---|---|
| CAGR | 10-12% | 10-13% |
| Max Drawdown | −18% to −22% | −12% to −18% |
| Sharpe Ratio | 0.6-0.8 | 0.7-1.0 |
| Monthly Turnover | Low | Moderate |
The improvement comes primarily from two sources: the faster signal reduces the depth of drawdowns during trend transitions, and the dynamic defensive asset avoids losses in the safe haven itself.
ADM in Practice
Monthly Process
At month-end, the ADM investor:
- Calculates composite momentum scores for all assets in the offensive universe
- Ranks assets from highest to lowest momentum
- Checks whether the top-ranked asset has positive absolute momentum
- If positive: invest 100% in the top-ranked offensive asset
- If negative: invest 100% in the top-ranked defensive asset
- Execute any necessary trades on the first trading day of the new month
The process takes approximately 15-20 minutes if done manually, or a few seconds using PortfolioWiser's automated signal calculation.
Concentration Risk
ADM's 100% allocation to a single asset is its most aggressive feature. When it is right — invested in the strongest-trending asset during a bull market — it captures the full upside. When it is wrong — concentrated in an asset that reverses after the monthly signal — it can suffer a full month's loss in that single position before the next rebalancing opportunity.
This concentration makes ADM most suitable as one component of a multi-strategy portfolio rather than as a standalone allocation. Blending ADM with more diversified strategies (canary-based, breadth-based, or multi-asset trend strategies) reduces the concentration risk while capturing ADM's return potential.
Variants and Customization
Top-N Selection
Instead of investing 100% in the top-ranked asset, some variants invest equally in the top 2 or top 3 ranked assets. This reduces concentration risk at the cost of slightly lower returns (since the second and third-ranked assets have weaker momentum than the top-ranked one).
Lookback Period Tuning
The specific weights in the composite momentum formula can be adjusted. Some practitioners emphasize shorter periods (overweighting the 1-month and 3-month components) for faster signal response, while others emphasize longer periods (overweighting 6-month and 12-month) for reduced whipsaw. The optimal balance depends on the investor's tolerance for turnover and false signals.
Adding Canary Filters
Some ADM implementations add a canary signal (monitoring economically sensitive assets like emerging markets or high-yield bonds) as an additional defensive trigger. If the canary signal is negative, the portfolio moves defensive regardless of the offensive universe's momentum. This provides an extra layer of early warning that pure momentum sometimes misses.
Who ADM Is For
ADM suits investors who:
- Want aggressive, growth-oriented returns with tactical protection
- Are comfortable with concentrated positions (100% in a single asset class)
- Plan to use it as one component of a multi-strategy portfolio
- Can follow the monthly signal disciplined without second-guessing
On PortfolioWiser, ADM-style strategies are available in the Scenarios section with full backtest histories. The platform calculates composite momentum scores automatically and shows you exactly which asset the strategy selects each month — along with the complete allocation history and performance metrics across all market environments.
Frequently Asked Questions
Is ADM better than GEM?
In backtests, ADM generally shows lower drawdowns and similar or better returns compared to classic GEM, primarily due to the faster composite signal and dynamic defensive asset selection. However, ADM has higher turnover, which creates more tax events in taxable accounts. For tax-advantaged accounts (IRA, 401k), ADM is the stronger choice.
Why not use ADM for my entire portfolio?
ADM's 100% concentration in a single asset creates significant single-asset risk. If the selected asset reverses sharply within a month (before the next signal), the entire portfolio suffers. Allocating ADM as 25-40% of a broader portfolio — combined with more diversified strategies — captures its return potential while managing concentration risk.
Can ADM be applied to sector ETFs?
Yes. The ADM framework can be applied to any universe of assets. Some variants use sector ETFs (XLK, XLF, XLE, XLV, etc.) instead of broad asset classes, creating a sector-rotation variant of ADM. This provides more granular momentum capture but with higher turnover and greater sensitivity to short-term noise.