Momentum Based Balancing (MBB)
Developed by Mark Virag · Multi-Momentum · Med Risk
Momentum Based Balancing was developed by Mark Virag and recognized with the 2014 NAAIM Wagner Award, the investment industry's premier prize for quantitative research contributions that advance the practice of active investment management. MBB applies multi-asset momentum selection with absolute momentum filtering to a diversified universe spanning equities, international markets, real estate, and safe-haven assets, producing a strategy that rotates among the strongest asset classes while maintaining a systematic safety valve during periods of broad market weakness.
The strategy selects the top four assets from a multi-asset universe based on trailing twelve-month relative strength, then subjects each selected asset to an absolute momentum test — requiring positive trailing returns before committing capital. Assets that pass both the relative ranking and absolute momentum tests receive equal allocation; those that fail the absolute test have their share redirected to short-term Treasuries (SHY). This dual-screen approach ensures the portfolio holds only assets that are both outperforming their peers and generating positive absolute returns.
The universe includes US equities (SPY), international developed (EFA), emerging markets (EEM), real estate (VNQ), gold (GLD), and multiple bond instruments, providing the momentum ranking with diverse alternatives across different economic regimes. During equity bull markets, the top four positions tend to be dominated by equity and equity-like assets. During bond rallies, fixed income instruments rise in the rankings. During commodity cycles, gold and real assets enter the top four. The strategy does not predict which regime will prevail — it systematically holds whatever combination of four assets is currently trending strongest.
Virag's contribution to the Wagner Award literature was demonstrating that this straightforward multi-asset momentum approach — combining relative ranking with absolute filtering — could produce risk-adjusted returns competitive with far more complex quantitative models. The strategy's transparency and simplicity made it accessible to individual investors and smaller advisory firms while maintaining the rigor that earned it the industry's most prestigious quantitative research recognition.
How It Works
Relative Strength Ranking
Each month, all assets in the universe are ranked by their trailing twelve-month total return. The twelve-month lookback captures the full momentum effect documented in academic research while providing stable rankings that change gradually over time. Assets that have been consistently outperforming over the past year receive the highest rankings, while those in declining trends fall to the bottom.
The top four by relative strength are selected as candidates for the portfolio. This four-position selection provides meaningful diversification across asset classes while remaining concentrated enough to benefit from the momentum signal. During strong trending environments, the top four positions may cluster in related asset classes (multiple equity regions during a bull market, for example), while during mixed environments they tend to span more diverse categories.
Absolute Momentum Filter
Before receiving allocation, each of the four selected assets must demonstrate positive absolute momentum — its trailing twelve-month return must be greater than zero. This filter prevents the portfolio from holding assets that may be relatively the best among a set of declining options but are nonetheless losing money in absolute terms.
Assets that fail the absolute test have their allocation redirected to short-term Treasuries (SHY), the strategy's cash-equivalent fallback. During normal markets, most or all of the top four pass this test and the portfolio is fully invested in its momentum-selected holdings. During market stress, when multiple asset classes show negative returns, the absolute filter progressively shifts capital to SHY — producing a graduated defensive response proportional to the breadth of market weakness.
Equal-Weight Allocation
The qualifying assets receive equal allocation, each receiving approximately twenty-five percent of the portfolio. This uniform sizing ensures no single momentum winner dominates the portfolio's risk contribution, maintaining diversification across whatever asset classes are currently trending strongest. The equal-weight approach is deliberately simple — avoiding the additional complexity of optimization-based or score-proportional weighting in favor of a transparent allocation rule that is easy to implement and understand.
The combination of twelve-month momentum ranking, absolute momentum filtering, and equal-weight allocation among four positions produces a strategy with moderate turnover. Rankings shift gradually as new twelve-month windows capture different market conditions, typically producing one to two position changes per month. The absolute momentum filter adds occasional transitions to and from SHY as individual assets cross the zero-return threshold.
Explore Momentum Based Balancing (MBB)
See the full backtest across 18 years of market data, or run your own what-if scenarios by adjusting all research parameters.