As we announced a few weeks ago, our very own Andrew Gogerty won 3rd place in the 2015 NAAIM Wagner Award paper competition for his research paper Momentum AND Diversification: A powerful risk-adjusted combination.
Here's the abstract:
Diversification is discussed in nearly every portfolio construction conversation as a risk management tool. Momentum, on the other hand, generally remains focused on results within an asset class (i.e. ranking stocks within an index, or broad equity sectors within an equity allocation) and is often framed as a total return concept. As a result, the two concepts rarely sit next to each other in a single conversation.
In this paper, we examine risk-adjusted returns generated by combining momentum and diversification across a spectrum of static asset allocation portfolios. The improved risk-adjusted total return highlights the positive impact that can be gained by utilizing a simple momentum framework to adjust the allocation not only in a simplistic allocation example, but also across a spectrum of static portfolios.
We also demonstrate the potential benefit of utilizing this framework over a spectrum of globally diversified, total portfolio solutions. By treating a portfolio as an asset class, we are able to capture the effects (and, hopefully, benefits) of diversification within our momentum selection process in a completely implicit manner.
You can read the full paper here.