The efficacy of ETF momentum strategies, while robust until around 2010, began to show signs of waning in subsequent years. This observation raises questions about the sustainability and adaptability of these strategies in varying market cycles. Central to this research is exploring how various factors/parameters—such as the ranking period, the selection quantity of assets, and the liquidity of ETFs—impact the performance of ETF momentum strategies. The aim is to uncover whether these strategies can deliver sustainable alpha in the complex and ever-evolving market landscape of the 2020s.

The primary motivation behind our study stems from an observation of the Global Tactical Asset Allocation (GTAA) strategies throughout the existing papers – the majority of them require relatively frequent rebalancing from the point of view of the ordinary investor. Portfolio rebalancing is usually done on a weekly or monthly basis, and while this period may seem overly boring and slow for the majority of traders (who like to trade on intraday or daily basis), fans of GTAA strategies are not traders; they are investors. Of course, some like to follow the ebbs and flows of the market. But a lot of investors just want to have a life. The financial market is not their hobby. However, on the other hand, they also do not want to hold just the passive buy & hold portfolio. Recognizing the demand for the semi-active strategy, we introduce our novel Pragmatic Asset Allocation.

There are a few concepts in the world of finance that are taken for granted, and one of them is the free lunch of diversification. Investors like to mix stocks and bonds into a simple allocation portfolio and hope for better outcomes than investing in just one asset. But the favorable return-to-risk profile of those asset allocation strategies relies on the low correlation between those two asset classes, which, as we will see from today’s contribution, we can’t take for granted. We hope the recent study sheds more light on this topic.

You may remember our blog post from the end of March, where we tested the current state-of-the-art LLM chatbot. Time flies fast. More than six months have passed since our last article, and half a year in a fast-developing field like Artificial intelligence feels like ten times more. So, we are here to revisit our article and try some new hacks! Has the OpenAI chatbot made any significant improvement? Can ChatGPT be used as a backtesting engine? We retake our risk parity asset allocation and test the limits of current AI development again!

In recent years, the diversification potential of commodities has come under scrutiny. While the majority of studies examining the role of commodities in a portfolio typically focus on U.S. investors or those dealing primarily with U.S. dollar-denominated assets, Dequiedt et al. (2023) offer a unique perspective by considering the viewpoint of domestic investors in a sample of 38 developed and emerging countries. The study explores the relationship between diversification benefits of commodities for local investors and country’s level of commodity risk exposure. Findings reveal that incorporating commodities tends to enhance the Sharpe ratio of the optimal domestic asset portfolios in most countries with low commodity dependence but doesn’t benefit highly commodity-dependent ones.

Even though gold is generally a volatile asset, it is often considered a key diversifier, hedging against inflation or protecting during economic uncertainties. According to the authors (Pim van Vliet and Harald Lohre), in times of extreme macroeconomic events, including war, hyperinflation, or major economic recessions, gold investing is widely regarded as a safe haven. However, using gold as a hedge comes at the cost of lower returns. The authors explored the importance of gold in investment portfolios and its ability to reduce the risk of losses combined with bonds and stocks. Compared to many existing studies, they also consider a longer timeframe and the impact of inflation.