Blending Fast and Slow Factor Momentum with a Market Portfolio

Summary

The document describes a monthly strategy that combines a portfolio of smart factors with a broad US equity market proxy. It uses five factor return series based on large US stocks. For each factor, it measures one-month and twelve-month momentum, ranks the signals by absolute strength, and assigns signed weights based on rank. The factor allocation blends the fast signal more heavily than the slow signal.

To divide capital between the factor portfolio and the market proxy, the method compares their average returns across twelve lookback windows, from one to twelve months. Each comparison awards a point to the stronger portfolio, and the point shares set their relative allocations at the monthly rebalance. The code uses IWM as its market proxy and shows a backtest implementation, but it provides no performance results. Its approach depends on historical factor and market returns, and the excerpt does not discuss transaction costs beyond a simple fee model, robustness, or risks from leverage and data assumptions.

Key ideas

• The strategy combines five US equity factor return series with a market portfolio proxy.
• It ranks absolute one-month and twelve-month momentum signals and uses their signs to determine factor weights.
• The factor weights favor the fast signal, blending it with the slower signal.
• A series of moving-average return comparisons determines the monthly split between factors and the market proxy.
• The document provides implementation details but no evidence of realized strategy performance.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.