Papa Bear Portfolio (PAPA_BEAR)
Developed by Brian Livingston · Multi-Momentum · Med-High Risk
The Papa Bear Portfolio is the more aggressive sibling in Brian Livingston's Muscular Portfolios family, published in his 2018 book. While Mama Bear applies simple twelve-month momentum to a broad multi-asset universe, Papa Bear operates within an equity-only universe of US stock style factors and applies a multi-period momentum composite that blends three, six, and twelve-month returns for more responsive trend detection. This focused equity approach produces higher returns during bull markets at the cost of higher volatility and deeper drawdowns during equity corrections.
The equity-only universe comprises four US stock style factors: large-cap growth (IWF), small-cap growth (IWO), small-cap value (IWN), and large-cap value (IWD). This style-level decomposition provides the momentum signal with meaningful differentiation within the equity market — growth and value, large and small — rather than comparing equities against fundamentally different asset classes. During growth-led rallies, IWF and IWO dominate the rankings. During value rotations, IWN and IWD lead. During small-cap cycles, both small-cap styles outperform their large-cap counterparts. The style rotation within equities provides the momentum signal with persistent leadership cycles to exploit.
The multi-period momentum composite averages three, six, and twelve-month returns — a blend that captures momentum across different horizons and provides more responsive signals than the single twelve-month lookback used by Mama Bear. The three-month component detects recent shifts in style leadership, the six-month component confirms emerging trends, and the twelve-month component validates long-term persistence. This multi-frequency approach reduces the lag inherent in single-period momentum while maintaining the noise-filtering benefit of longer lookbacks.
Papa Bear selects the top three styles by composite momentum and allocates equally. Like Mama Bear, there is no explicit defensive mechanism — the strategy is always fully invested in equities. This means Papa Bear provides no protection during broad equity bear markets where all four style factors decline together. The strategy's value proposition is not crash protection but rather superior equity returns during normal market conditions through systematic style rotation — capturing the well-documented size and value factor premiums through momentum-timed exposure.
How It Works
Multi-Period Style Momentum
Each month, all four equity style ETFs — large-cap growth (IWF), small-cap growth (IWO), small-cap value (IWN), and large-cap value (IWD) — are scored using a composite that averages their trailing three-month, six-month, and twelve-month total returns. This multi-period blend captures the style rotation cycle at multiple frequencies, producing more robust rankings than any single lookback period.
The three-period averaging means a style must show consistent strength across short, medium, and long-term horizons to rank highly. A style that has surged over three months but lagged over twelve receives a moderate composite score, preventing the portfolio from chasing short-lived style rotations. Conversely, a style with strong twelve-month returns but weakening three-month momentum begins declining in the rankings before a single-period system would detect the deterioration.
Top-Three Equal-Weight Selection
The three highest-scoring styles receive equal allocation at approximately thirty-three percent each, with the fourth-ranked style excluded. This three-of-four selection means the portfolio is always meaningfully tilted toward the currently favored styles while excluding only the weakest. During periods of clear style leadership — such as the growth dominance of the 2010s — the excluded style represents a deliberate underweight that contributes to outperformance when the signal is correct.
The narrow, equity-only universe means the portfolio's total risk level remains consistently high — there are no bonds, gold, or cash positions to reduce volatility. The risk management, such as it is, comes entirely from the style diversification: holding three of four styles ensures the portfolio is never exclusively in the single worst-performing segment. During broad equity declines, all four styles typically decline together, and the three-of-four construction provides no meaningful protection.
Style Rotation and Factor Exposure
The equity style factors captured by the four ETFs represent two of the most well-documented risk premiums in academic finance: the size premium (small caps vs. large caps) and the value premium (value stocks vs. growth stocks). These premiums have been identified across markets and time periods spanning over a century, though they exhibit cyclical variation — sometimes favoring small value, other times favoring large growth — that creates the rotational patterns Papa Bear exploits.
The momentum-based timing of factor exposure aims to hold the factor combination that is currently rewarded by the market, capturing each premium during its favorable phase while avoiding it during its adverse phase. During the early stages of economic recovery, small-cap and value stocks tend to outperform as investors rotate into cyclically sensitive, undervalued companies. During late-cycle growth phases, large-cap growth tends to lead as investors pay premiums for earnings consistency. The momentum composite systematically positions on the right side of these rotations without requiring macro forecasting or factor timing models.
Explore Papa Bear Portfolio (PAPA_BEAR)
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