
Growing Capital During a Downturn?
Market downturns can be daunting for investors, but is sitting in cash the best we can do?
In a newsletter earlier this month, I discussed how we use regime filters to protect our investments against broad market drawdowns. In that article, I demonstrated how our US Momentum strategy could be run concurrently with our US All Weather in order to stay invested during a downturn.
In response to this, long-term subscriber Luke posed the question: “What would be the results of switching a momentum strategy to the All Weather portfolio instead of sitting in cash?”
Thanks Luke. it’s a great question, so let’s run some backtests and try it out.
The US Momentum and US All Weather both trade only on the first day of each month, meaning no modification needs to be made to either strategy to run this live. Instead of sitting in cash when the US Momentum signals a downturn, we’ll trigger the US All Weather portfolio and shift our capital there.
The table below shows the results for the standalone strategies, the strategies if the starting capital was split 50/50 and run concurrently, and then switching between the two strategies as described above.
The results are interesting. While splitting the capital 50/50 resulted in a middle ground between the two strategies, the portfolio switch slightly increased the CAGR without changing the MaxDD.
So why does this work? The All Weather portfolio is inherently designed to adjust its allocations based on market conditions. In downturns, it naturally shifts toward defensive assets like gold and bonds. By using US Momentum for growth and switching to All Weather for defense, we’re effectively optimizing our exposure without increasing risk.
Want to see these strategies in action? View our historical performance here or take a free trial to see them operating live.