U-Defense First Overview
| CAGR | 10.9% |
|---|---|
| Maximum drawdown | -18.2% |
| MAR ratio | 0.60 |
| History | 46 years (561 months) |
U-Defense First is a UCITS version of Defense First, Tom Carlson's tactical strategy that ranks defensive assets first and holds stocks only where defense is not working, for investors outside the United States who buy UCITS funds rather than US-listed ETFs.
The rules are the original's: each month, score long Treasuries, gold, commodities and the US dollar by the plain average of their 1, 3, 6 and 12-month returns, rank them, and hold them at 40%, 30%, 20% and 10% of the portfolio. Any of the four whose score is below Treasury bills hands its slot to the S&P 500. The portfolio is rebalanced every month.
The One Change: The US Dollar Slot
Defense First holds the US dollar through UUP, a US fund that tracks the US Dollar Index: the dollar against a basket of the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc. No UCITS fund or ETC tracks that basket. The closest products available outside the US track the dollar against a single currency and carry swap costs on top of their fees.
So U-Defense First still scores and ranks the dollar exactly as the original does, but when the dollar wins a slot, that slot is held as US dollar Treasury bills instead. Every other slot, and every switch into stocks, is identical to the US version.
For an investor whose home currency is the pound, the euro or most others, dollar Treasury bills still carry dollar exposure: when the dollar strengthens against your currency, the position gains in your currency. What the substitution gives up, measured in US dollars, is the dollar's move against the basket. The dollar slot has been held in 227 of the 561 months on record, most often at 30% or 40% of the portfolio, so the change is real but contained. Its largest effect came in 2008, when the dollar rallied sharply through the financial crisis: the US version held the dollar and gained from it, while U-Defense First earned T-bill returns in that slot instead. That is why U-Defense First's worst decline is slightly deeper than the original's.
The UCITS Funds
| Role | Fund | Ticker (London, USD) | GBP line | ISIN |
|---|---|---|---|---|
| Long Treasuries | iShares $ Treasury Bond 20+yr UCITS ETF (Acc) | DTLA | none | IE00BFM6TC58 |
| Gold | iShares Physical Gold ETC | IGLN | SGLN | IE00B4ND3602 |
| Commodities | Invesco Bloomberg Commodity UCITS ETF (Acc) | CMOD | CMOP | IE00BD6FTQ80 |
| US dollar slot (held as US T-bills) | iShares $ Treasury Bond 0-1yr UCITS ETF (Acc) | IB01 | none | IE00BGSF1X88 |
| Stock fallback (S&P 500) | iShares Core S&P 500 UCITS ETF (Acc) | CSPX | CSP1 | IE00B5BMR087 |
How Closely the Funds Match
- Long Treasuries and the S&P 500 are held through UCITS funds tracking the same maturity band and the same index as the US funds they replace.
- Gold is held through a physical gold ETC, the same asset as the US fund.
- Commodities are held through a Bloomberg Commodity index fund in place of the US fund's optimum-yield index, so returns will differ somewhat in the months commodities are held.
- The US dollar slot is the one deliberate change, described above.
Performance Highlights
January 1980 through September 2026, net of trading friction:
| CAGR | Max Drawdown | Ulcer Index | UPI | |
|---|---|---|---|---|
| U-Defense First | +10.9% | -18.2% | 4.02 | 1.66 |
| Defense First | +10.8% | -16.8% | 3.97 | 1.66 |
| S&P 500 | +12.0% | -51.0% | 12.72 | 0.61 |
Over the full record the two versions are nearly indistinguishable on return and on risk-adjusted return. The dollar contributed little return over the long run, which is typical of currencies, so replacing it with T-bills costs almost nothing in compounding. Where it shows is in the worst decline: the dollar's 2008 rally cushioned the original, and U-Defense First did not have it.
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.
Notes for Investors Outside the US
- Results are in US dollars. The strategy is calculated on the history of the equivalent US funds, in US dollars. If you measure your portfolio in pounds, euros or another currency, your results will also move with the exchange rate, and that matters more here than in most strategies because the dollar slot is a currency position.
- Why UCITS funds. Irish-domiciled UCITS funds are the standard way for non-US investors to hold US markets. They often receive US dividends at a lower withholding rate than a non-US investor holding US-listed ETFs directly would, and they are not US assets for US estate tax purposes. Rules vary by country, so check with a tax adviser where you live.
- Gold is held as an ETC. UCITS rules do not allow a fund that holds only gold, so gold is held through the iShares Physical Gold ETC, a security backed by physical gold. It is not a UCITS fund, but it is UCITS eligible and widely available to investors in the UK, Europe and elsewhere.
- Listings. The tickers above are the London Stock Exchange USD lines unless noted. Most of the funds also trade in London in pounds and on European exchanges in euros, under the same ISIN, which is the surest way to find the right fund at any broker.
Who It's For
U-Defense First is for investors outside the US who want a strategy that starts from defense, spreading protection across Treasuries, gold, commodities and the dollar, and adds stocks only when those defenses fade, built entirely from UCITS funds and a physical gold ETC.
Defense First originates in Tom Carlson's research and is presented here as an independent implementation. Dual Momentum Systems is not affiliated with or endorsed by Tom Carlson. More information on the strategy from its developer, including the original paper, is available at SSRN.
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. U-Defense First is calculated on the history of the equivalent US-listed funds; the UCITS funds track the same or closely matching indexes but their returns will differ, including from fees, tax treatment and currency. Portions of the long-term history rely on reconstructed proxy data for funds that did not exist for the full period. Investors should carefully consider their risk tolerance and consult with a financial advisor.
For the latest details, visit www.DualMomentumSystems.com