Momentum versus 60/40 mix

We were asked to provide some simple model evidence on the quality of momentum and versus a simple balanced portfolio. We provide a simple case using only two assets. We use the 60/40 stock /bond combination as a benchmark. 

Use momentum indicator based on rolling six month returns. Allocation map will avoid negative momentum assets and hold positive momentum assets. If both assets (SPX and TLT) are positive, we hold the 60/40 mix. If both are negative, we hold half the normal allocation. If the stocks outperform bonds, we hold more stocks and if bonds outperform stocks, we hold more bonds. The minimum allocation for stocks is 30% and the minimum allocation for bonds is 20%. There is not a lot of variation from the benchmark. There is no shorting. There is no use of leverage. 

The gain in return is significant. If there is positive momentum, holding cash makes sense. If there is a bias in performance of one asset over another, favor the better performing asset. There is still diversification, but just some simple tilts. This simple model works with only one down year in ten.