About GEM Strategy

What is GEM Strategy?

Global Equities Momentum (GEM) is an investment strategy developed by Gary Antonacci, described in his book "Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk". The strategy utilizes the momentum phenomenon — the tendency of assets that have performed well in the past to continue performing well in the future.

GEM is a systematic and rules-based strategy, meaning investment decisions are made based on specific rules rather than subjective opinions or emotions. This approach eliminates cognitive biases that often affect individual investors.

How does momentum work?

GEM Strategy uses two types of momentum:

1. Absolute Momentum

Compares the performance of a selected asset against an alternative, safe return rate. In our model, we use the yield of short-term US Treasury bills (represented by the IB01 ETF) as the risk-free rate benchmark. If the best equity ETF achieves a return higher than Treasury bills, we recognize that safe conditions prevail on stock exchanges ("Risk-On") and we invest in equities. If its return is lower than the safe haven yield, we switch to defensive mode ("Risk-Off") and flee to bonds.

2. Relative Momentum

Compares the performance of three equity markets against each other and selects the one that grew the strongest over the past 12 months. In our calculator, we compare:

• IWDA (developed market stocks – MSCI World)
• EIMI (emerging market stocks – MSCI Emerging Markets)
• CNDX (technology companies – NASDAQ 100)

How does our algorithm combine both types?

Each month, the system performs the following calculation:

1. Equity Leader Selection (Relative Momentum): The system compares returns over the past 12 months for three equity ETFs: IWDA, EIMI, and CNDX and identifies the one with the highest result.
2. Safety Test (Absolute Momentum): The system checks whether the selected equity leader's return is higher than the risk-free rate represented by the IB01 ETF (US Treasury bills).
   • Risk-On Variant: If the equity leader outperformed the safe Treasury yield (IB01), the algorithm generates a buy or hold recommendation for that leader (e.g., "Invest in CNDX").
   • Risk-Off Variant: If the equity leader's return is lower than or equal to the IB01 yield, the algorithm orders fleeing the equity market to protect capital.
3. Safe Haven Selection: In defensive mode (Risk-Off), the system compares two safe bond ETFs: IB01 and CBU0 and recommends buying the one that achieved a higher return in the recent period.
4. Monthly Rebalance: The entire procedure is repeated automatically at the end of each month.

Instruments used in the strategy

Why does GEM outperform "buy and hold"?

Advantages of GEM Strategy:

• Loss limitation in bear markets — In down years, GEM automatically moves capital to safe bonds, avoiding large drawdowns.
• Participation in bull markets — When the market rises, the strategy invests in stocks, capturing upside.
• Emotion-free — Rules are clear, no room for fear, greed, or hesitation.
• Simple implementation — Instead of tracking hundreds of companies, you monitor only 5 specific, highly liquid ETFs listed in Europe: 3 equity (IWDA, EIMI, CNDX) and 2 bond (IB01, CBU0). The SPY index serves us solely as a reference background for performance comparison. All portfolio rebalancing transactions can be executed through any broker once a month in a few minutes.
• Low costs — Strategy uses inexpensive ETFs with low expense ratios (TER).

Disadvantages and limitations:

• Whipsaw — In high volatility periods, the strategy may change positions more frequently, generating transaction costs.
• Lag relative to peak — Momentum works with a lag, so the strategy may not exit exactly at the top.
• Requires discipline — You must stick to the rules even when "the market seems extreme."
• Tracking error risk — In strong bull markets, GEM may slightly underperform simple buy-and-hold.

Historical Results

Gary Antonacci's research shows that Dual Momentum strategies (including GEM) have achieved significantly better risk-adjusted results than traditional buy-and-hold approaches over multi-year periods.

Typical results (historical data from USA):

• GEM CAGR: ~12-15% annually (depending on period)
• Buy-and-hold S&P 500 CAGR: ~10-12% annually
• Maximum GEM drawdown: ~15-20%
• Maximum S&P 500 drawdown: ~50%+ (in crises)

* The above data is examples from historical research. Actual results may vary.