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Academic audit

Failedmulti-asset ETF momentum

Asset Class Momentum Rotational System

The three-gate gauntlet · genuine only if it clears all three and survives adversarial refutation
Gate 1
Survivorship-free
immune
clean panel
Eliminated here
Gate 2
Placebo ≥ P95
P58
outranked ~116 of 200 baskets
Gate 3
Cost-aware net
RF +5.87
positive, not certified
Failed
Worst 12-month leg (RF)-0.55
−1.00 floor0
Every strategy here — winners included — loses in its worst 12 months. Depth is honest context, not the verdict.
Rejected at the luck gate — its net ranked no better than random baskets (below the P95 skill line).

Each month, this system ranks seven asset-class ETFs (SPY, EFA, EEM, TLT, IEF, GLD, VNQ) by their trailing 12-month return and holds the top three, per Faber's relative-momentum approach. The idea is that recent relative strength carries forward across asset classes.

What we found

The momentum ranking added nothing detectable. Its placebo percentile was 58, meaning random selections of the same ETFs did about as well — there is no measurable rank-skill in the momentum signal. An equal-weight buy-and-hold of all seven ETFs outperformed the rotation over the test window, so the results reflect passive asset-class exposure (beta) rather than any timing or selection edge. We reject it as a standalone effect.

How we tested it
2005–2026 test windowmodelled liquidity-aware costssurvivorship immune
  • Tested on a set of liquid asset-class ETFs (SPY, EFA, EEM, TLT, IEF, GLD, VNQ), monthly rebalancing. Realistic modelled costs.
  • Placebo / robustness test: real result vs random baskets or shuffled signals (real vs the 95th percentile of random)
Source: Faber (2010) relative-momentum across asset-class ETFs; QuantPedia
Read the paper ↗
← The Academic Audit — all 54 studies

Research, not investment advice. “Validated” factor-legs are market-neutral diversifying building blocks with a losing worst year — none is a standalone tradeable strategy. Metrics are cost-aware and modelled (not live fills); the 2005–2026 test window is out-of-sample versus the source paper. Dollar figures are not returns and are omitted by design.