Today we are launching BestFolio Originals - five strategies designed entirely in-house by the BestFolio Research team. Unlike the aggregated academic and community strategies on our platform, these are built from scratch, combining the best ideas from the momentum, trend-following, and macro regime literature into new, differentiated systems.
The Headline: Composite Momentum
Our flagship original is Composite Momentum, a trend-filtered multi-asset rotation strategy that achieves a rare combination: 12.5% annualized return with a Sharpe ratio above 1.0 over a 25+ year backtest period.
The strategy is deceptively simple. It asks two questions each month:
- Is the market in an uptrend? (SPY above its 200-day moving average)
- Which assets have the strongest momentum? (8-month return, filtered for positive momentum only)
When the trend is up, it selects the top assets by momentum and weights them by inverse volatility - giving more weight to less volatile assets for better risk-adjusted returns. When the trend is down, it rotates entirely into a defensive allocation of intermediate bonds (IEF) and gold (GLD).
Why It Works
Composite Momentum is not one idea - it is a synthesis of five proven concepts from the academic literature:
- Trend following (Faber, 2007): The SPY 200-day SMA filter avoids bear markets. The strategy was defensive during the 2000-2002 dot-com crash, the 2008 financial crisis, and the 2022 downturn.
- Cross-sectional momentum (Jegadeesh & Titman, 1993): Assets that have performed well tend to continue performing well. The 8-month lookback was optimized across 1-12 month windows.
- Absolute momentum (Antonacci, 2014): Only holding assets with positive momentum eliminates the drag of holding declining assets, even if they rank among the top.
- Inverse-volatility weighting (EAA, Keller 2014): Sizing positions by risk contribution rather than equal weight improves Sharpe ratios by 0.05-0.10 in our testing.
- Broad multi-asset universe (PAA, VAA): By spanning equities, bonds, real estate, gold, and commodities, the strategy always has somewhere to rotate into.
Three Variants
| Variant | Universe | CAGR | Sharpe | Max Drawdown |
|---|---|---|---|---|
| Standard | 8 core assets, top 4 | 12.5% | 1.13 | -20.4% |
| Aggressive | 11 assets, top 3 | 13.6% | 1.07 | -17.8% |
| SmartStack | 8 core + leveraged overlay | 17.5% | 1.07 | -30.4% |
For comparison, SPY buy-and-hold delivered 8.1% CAGR with a Sharpe of 0.50 and a -55% maximum drawdown over the same period. A 60/40 portfolio achieved 8.7% CAGR with a 0.82 Sharpe.
VIX Shield: Daily Volatility Regime Allocator
VIX Shield uses the VIX index to dynamically shift between equities, managed futures (DBMF), and gold. Four regimes - Calm, Elevated, Crisis, and Panic Reversal - each map to a different allocation. The Conservative variant achieves a 0.99 Sharpe ratio with only -21.6% maximum drawdown.
The contrarian Panic Reversal signal is particularly noteworthy: when VIX spikes above 35 but starts falling (indicating the worst may be over), the strategy aggressively shifts back to equities - capturing the sharp rebounds that typically follow market panics.
Regime Detector: Multi-Signal Composite
Regime Detector uses six independent signals - price trend, VIX level, ADX trend strength, credit spreads, canary asset health, and market breadth - to build a composite regime score from -6 to +6. It switches between leveraged equities (SSO/UPRO) and safe havens (SHV) with built-in hysteresis to avoid whipsaws. The SmartLeverage variant achieved 15.8% CAGR.
Golden Ratio: The Balanced Static Portfolio
Not every investor wants tactical complexity. Golden Ratio, sourced from the Bogleheads community, is a fixed allocation designed for long-term investors who want set-and-forget diversification: 21% US Large Cap Growth (VUG), 21% Small Cap Value (AVUV), 26% Long-Term Treasuries (VGLT), 16% Gold (GLD), 10% Managed Futures (DBMF), and 6% T-Bills (BIL). It achieved a 0.95 Sharpe ratio with just -19.1% maximum drawdown - all without a single trade signal.
Growth-Inflation Sector Timing: Macro Quadrant Rotation
Inspired by David Varadi (CSS Analytics), this strategy classifies the economy into four quadrants based on growth (SPY vs. 200-day SMA) and inflation (relative performance of inflation-sensitive sectors). It then rotates into the sector ETF that historically performs best in each regime - Technology (XLK) in growth booms, Energy (XLE) during inflationary periods, Healthcare (XLV) in deflationary recessions.
What Makes These Different
Every strategy on BestFolio goes through the same rigorous process: proper lag-1 signal execution (no look-ahead bias), extended backtests using synthetic leverage and proxy chains back to the 1990s, transaction cost modeling, and stress-tested drawdown analysis. Our original strategies are held to the same standard as the academic ones - and in the case of Composite Momentum, the results speak for themselves.
All five strategies are now live on BestFolio for Pro subscribers. Explore them on the Leaderboard or dive into the details on each strategy page.