Carrier Strategy Overview

Carrier is a credit-regime strategy developed by Randy Harris of Dual Momentum Systems. It holds a diversified growth portfolio and keeps holding it through ordinary market noise. It steps aside only when the high yield bond market says something is genuinely wrong, and it steps back in as soon as that stress starts to ease.

Carrier was built to do the job LT Gain was designed for, compounding with mostly long-term gains, but from the opposite direction. LT Gain watches price momentum and exits whenever stocks lose to cash. That protects well in a crash but can mean frequent switching in choppy markets. Carrier watches the credit market instead, the way Catalyst watches inflation, and credit only reaches stress levels in real credit events. The result is a strategy that is invested about 84% of the time and changes position less than once a year on average.

Core Strategy Logic

The signal: high yield credit spreads

The high yield credit spread is the extra yield investors demand to hold below-investment-grade corporate bonds instead of Treasuries. In calm markets it sits around 3% to 4%. When lenders start to worry about defaults, recessions or funding stress, it widens, and it widened sharply in every major credit event of the last three decades: 1998, 2000 to 2002, 2008, 2011, 2015 to 2016 and 2020.

Credit markets are a useful early read because bond investors are paid to worry about the downside. Equity investors can stay optimistic for a long time; lenders who are about to lose principal tend not to.

Carrier reads the spread at each month end and holds the resulting position for the following month.

Step 1 - In or out

Carrier is Risk Off when both of these are true:

1. The spread is 6.5% or higher, and
2. The spread is not yet 2 points below its highest month-end reading of the last six months.

Otherwise it is Risk On.

The first condition says stress is high. The second says it is still building, or at least has not clearly turned. When a spike starts to reverse, for example a spread that jumped to 9% and has come back to 7%, Carrier goes back in even though 7% is still an elevated reading. It does not wait for the all-clear.

That second rule matters more than the first. Equity markets usually bottom while credit spreads are still high, and a rule that waits for spreads to normalize misses the best part of the recovery. Carrier's re-entry rule got it back in during February 2003 and February 2009, in both cases with spreads above 8%.

Step 2 - What to hold

Situation	Holding
Risk On	IWB 50% / QQQ 20% / DBMF 15% / CLSE 15%
Risk Off	IEF (intermediate Treasuries)

The Risk On portfolio is diversified on purpose. U.S. large cap and the Nasdaq 100 carry the growth. Managed futures (DBMF) and long/short equity (CLSE) are there for the bear market that credit spreads do not flag. 2022 was the clearest example: stocks and bonds fell together, the spread never reached 6.5%, and Carrier stayed invested. The 30% managed futures and long/short sleeve cut that year's drawdown by 8 to 10 points compared with an all-equity version.

The defensive position is intermediate Treasuries. In credit panics, Treasuries have generally been the asset investors run toward, and IEF was the best single defensive holding across Carrier's Risk Off months. An earlier version of Carrier held extended-duration Treasuries (EDV) for the first month of each Risk Off run. When EDV's history before its 2007 launch was rebuilt from the Federal Reserve's zero-coupon Treasury curve, that first month still added about 0.7% a year, but it deepened Carrier's worst drawdown by about four points, mostly from March 2002, when EDV fell 8% at the start of a Risk Off run. That is not a good trade, so Carrier now holds IEF in every Risk Off month.

Rebalancing

Carrier does not reset its weights every month. It rebalances when its position changes, every January, or when any holding drifts more than ten percentage points from its target. That keeps trading to a minimum and lets winning positions run, while the January reset keeps the growth portfolio from drifting too equity-heavy over long invested stretches.

Key Enhancement: Smart Leverage (Carrier 170 and 240)

The base Carrier is unleveraged. Two variants apply Smart Leverage to the U.S. large cap and Nasdaq 100 positions:

• Carrier 170 substitutes 2X S&P 500 (SSO) for IWB and 2X Nasdaq 100 (QLD) for QQQ, for up to 170% notional exposure.
• Carrier 240 substitutes 3X S&P 500 (UPRO) for IWB and 3X Nasdaq 100 (TQQQ) for QQQ, for up to 240%.

The managed futures and long/short positions are never leveraged, and neither is the defensive position.

Smart Leverage is opportunistic, not permanent. It arms only after U.S. large cap has fallen at least 10% from its all-time high, and it deploys only once momentum has genuinely turned back up. It exits on a momentum reversal, when Carrier goes Risk Off, or at a hard 13-month cap. The 13-month cap is set so a full-length deployment clears the one-year holding period for long-term capital gains.

One trigger, one deployment. When a deployment ends for any reason, the drawdown that armed it is spent, and a fresh one is needed before leverage can be used again.

Carrier's re-entry rule and Smart Leverage tend to work together. Carrier usually gets back in near a market low, while stocks are still well below their peak, which is exactly when Smart Leverage is armed.

How Carrier Compares to LT Gain

	Carrier	LT Gain
What decides in or out	High yield credit spread	U.S. large cap momentum vs. cash
Invested share of the time	About 84%	About 73%
Position changes per year	About 0.8	About 1.6
Risk On holdings	Four funds	IWB only
Defensive holdings	IEF	EDV, then TLT, or short duration

The trade-off is straightforward:

• Carrier holds through more noise. Corrections that are not credit events, such as 2018, do not move it. That is the point, and it is where its tax efficiency comes from.
• LT Gain exits crashes faster. Its drawdowns were shallower in 2000 to 2002, 2008 and 2020, because momentum turns before credit spreads confirm. Carrier exited 2020 after the March crash and missed part of the April rebound.
• Neither escaped 2022. Carrier's diversified Risk On portfolio fell less than LT Gain's (-14.1% against -18.3% for the year).

Performance Highlights

January 1997 through September 2026, net of trading friction:

	CAGR	Max Drawdown	Ulcer Index	UPI
Carrier	+13.8%	-16.1%	4.69	2.48
Carrier 170	+16.4%	-19.9%	5.98	2.38
Carrier 240	+19.0%	-24.6%	7.87	2.14
S&P 500	+9.9%	-51.0%	15.11	0.51

The Ulcer Index measures how deep and how long drawdowns were, not just the single worst one: lower is better. UPI (Ulcer Performance Index) is return above T-bills per unit of Ulcer Index: higher is better.

The history starts in 1997 because that is where the high yield spread series begins. Carrier's worst drawdown in the record is 2022, the bear market the credit signal cannot see, not one of the credit crises. Most of Carrier's advantage came from two periods, 2000 to 2002 and 2008, when it spent long stretches out of equities. In calmer decades it tends to trail a fully invested version of its own portfolio, because the occasional exit costs more than it saves. That is the price of the protection.

Portfolio Characteristics

• Mostly invested. Carrier is Risk Off only during credit stress, about 16% of months over the backtest.
• Few position changes. Less than one regime change a year on average, and most months need no action at all.
• Built for long-term gains. About 93% of realized gains in the backtest were long-term. Most short-term gains come from the defensive position, which is usually held for less than a year.
• Diversified while invested. Four funds across U.S. large cap, technology, managed futures and long/short equity.
• All-or-nothing on the regime call. When Carrier goes Risk Off, it goes fully Risk Off.
• Blind spot: non-credit bear markets. A decline driven by rates or inflation, rather than credit stress, may not trigger the exit. The managed futures and long/short positions are the cushion for that case.
• Fully mechanical. Every allocation follows from published rules with no discretionary override.
• Scalable. All positions are liquid, exchange-traded funds.

Who It's For

Carrier is designed for investors who want:

• A growth portfolio that stays invested through ordinary corrections.
• Fewer trades and a higher share of long-term gains, including in taxable accounts.
• A defined, rules-based exit for real credit crises.
• Optional tactical leverage during recoveries, via Carrier 170 or 240.

It is likely a poor fit for investors who want the fastest possible exit in a sudden crash, who need protection against every kind of bear market, or who need current income. Carrier 240 in particular is not a starting point for anyone who has not held a leveraged position through a drawdown before.

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Past performance, including backtested results, is not indicative of future results. Backtested performance is hypothetical, does not reflect actual trading, and benefits from hindsight in the selection of strategy rules. Portions of the long-term history rely on reconstructed proxy data for funds that did not exist for the full period, including DBMF, CLSE and the leveraged funds. Investors should carefully consider their risk tolerance and consult with a financial advisor.

For the latest details, visit www.DualMomentumSystems.com