Without question, 2024 was a strong year for stocks. Both the Nasdaq 100 and the S&P500 were up about 25% after dividends.
But alternative assets were up more. Gold was up 26.7%, and Bitcoin was up a whopping 121%.
As dual momentum investors, we apply our methods not simply to stocks, but also to fixed income, gold, and digital assets, including blockchain technology and Bitcoin. In this respect, we utilize ETFs, as the universe of asset classes accessible via ETFs continues to grow.
In their inaugural years, our alternative asset models exhibited unusually strong performance. Our Gold Long Term Trend model (GLTR) strongly outperformed both gold itself and our expectations derived from our backtest (see below), and our Bitcoin and Digital Asset Synergistic System (BADASS) picked up most of the 2024 return of Bitcoin, despite that the model did not include exposure to Bitcoin ETFs until October.
Bitcoin ETFs became tradable in the U.S. beginning in mid-January and were excluded from our digital asset model until several months later when we found that we had enough data to justify their inclusion. Before that time, our digital asset model’s primary asset was the Amplify Transformational Data Sharing ETF (BLOK). BLOK contains exposure to public companies that make use of blockchain technology and exhibits strong correlation to Bitcoin futures contracts. BLOK was up over 53% in 2024. Currently, our digital asset model’s primary ETFs are BLOK and IBIT, the iShares Bitcoin ETF.
However, our digital asset model contains exposure to digital assets only about half of the time. Under our dual momentum approach, there is no point in holding these ETFs when they are not in an uptrend. When the model does not hold one or both of these ETFs, it holds whatever GLTR is holding. For its part, GLTR holds gold ETFs about half the time, and the other half of the time it holds what our all-asset dual momentum model A-GEM holds. A-GEM can hold just about any asset for which an ETF exists, and it can shift into fixed income or cash if there are no better opportunities.
By layering exposure to these three models, our investors can benefit from relative strength momentum, reduce whipsaw trades, and shift aggressiveness up or down, as conditions warrant.
According to this logic, 2024 left us with an embarrassment of riches. When otherwise strongly performing digital asset ETFs were not candidates for investment, strongly performing gold ETFs were, and when otherwise strongly performing gold ETFs were not candidates for investment, strongly performing U.S. growth and tech ETFs were. According to the above chart, U.S. growth ETFs were up over 33% in 2024.
In this way, our digital asset model could stay on the right side of the market in 2024. At the start of 2024, however, there was no reason to hold BLOK, or a gold ETF, over U.S. growth stocks. As a result, we started the year holding what our A-GEM model held, specifically these tickers: IYW, XLG, and SCHG. After rebalancing two times before we received a buy signal on BLOK on February 12, the digital asset model held IYW and XLG throughout. Between them, these ETFs gained a powerful 8% in the first six weeks of 2024.
Our February 12 buy signal on BLOK resulted in a holding period of just three days, given its explosive move upward. We sold into strength in order to protect profits and apply mean reversion trading principles on BLOK. Unlike with Bitcoin ETFs, BLOK contains exposure to corporations with cash flow, which prevents BLOK’s momentum from continuing up or down as much as Bitcoin does. We picked up another 7.5% gain for the model in just three days.
At that point it was back to growth ETFs before we received another signal to buy BLOK on February 22. This trade resulted in a small loss, which we closed on April 16. Despite this trade, our digital asset model picked up over 33% after fees and commissions in the first quarter of 2024.
The model suffered a correction in April, giving back more than half of the first quarter’s strong gains. Nevertheless, the model was up to a strong start in the first four months of 2024.
On June 5, we received another buy signal on BLOK that we would hold until July 26, when received a buy signal on gold. We picked up about 6.5% on this BLOK trade and closed out the second quarter with a loss of about 10.8%. However, the model remained up over 19% YTD as of the end of the second quarter.
Gold was the story in the third quarter, as the model held a full position in BAR, a physical gold ETF until September 6, and a half position until October 17. By September 6, the model had incorporated IBIT as another primary asset besides BLOK and would enter a half-sized position in IBIT on October 17 when the gold position was sold.
The gold trade worked beautifully. The first half position was sold for more than a 5% gain, and the second half was sold for more than 12% gain. On September 6, the model re-entered BLOK in a half-sized position that it would hold until nearly the end of the year. The digital asset model gained another 18+% after fees and commissions in the third quarter.
The half-sized September 6 entry in BLOK was especially well-timed, and gained more than 21% until another signal to buy gold occurred on December 20.
To cap off a brilliant 2024, the model entered a half-sized position in IBIT on October 17 and held to the end of the year, picking up another 39%.
The model picked up another 32% after fees and commissions in the fourth quarter, with the great majority of those gains occurring in November. For its part, GLTR finished the year up more than 35% after fees and commissions.
Our alternative asset models’ gains in 2024 were truly extraordinary, but they were no accident. Dual momentum is designed to keep investors on the right side of the markets, and the models’ exposure in 2024 was dominated by the best performing assets in 2024: Bitcoin, gold, and U.S. growth stocks.
But it is also the case that the model’s performance is dependent on how the assets it trades perform, and these best performing assets performed unusually well. These are the backtested performance metrics for GLTR and BADASS since 2018, when BLOK began trading.
Future years will not likely bring as many opportunities for these models as did 2024, especially for GLTR. GLTR’s performance in 2024 approached two standard deviations above its compound annual growth rate in our backtest. But while it is true that the digital asset model’s performance in 2024 greatly exceeded expectations from our backtest, it did not exceed more than one standard deviation above that rate. As a result, we have high hopes for the model in the years to come, and GLTR will remain an excellent diversifier in a portfolio of our models.