A year ago, we recommended paying attention to one interesting ETF, managed based on the «momentum» factor. Recall supporters of this approach to portfolio development, believe that it is better to «buy expensive and sell even more», resulting in a portfolio consisting of shares showing the strongest dynamics for a certain period. As a remark, it was noted that such a tool should be used not «instead of» allocation in suitable asset classes, but applied «together» with it, as a satellite to the main portfolio. Here’s the post: https://t.me/sgcapital/97
The fund behaved completely within the limits of expectations. And the expectations were as follows: while the market as a whole continues to grow, momentum-strategies will outpace the average market yield. The graph shows the dynamics of the fund MTUM in comparison with the index S & P-500 for the period after the publication of the post. Result: + 6% to the index for the year. Investors, apparently, also have tried this tool, if a year ago, the NAV of the fund was 3.2 billion, but now it is already 9.3 billion dollars. Well, it’s not bad after all, when you for 0.15% per annum spend all the necessary actions for the selection of securities (the number of securities in the portfolio, by the way, remains the same, 125 pieces). However, again, I repeat that only those who believe in such an approach to portfolio management can please. The rest will be quieter to invest in SPY.
And we want to introduce the supporters of momentum investment today to another interesting product from First Trust. This time, we are talking about a fund of funds with a ticker FV- in this ETF the 5 most «hot» ETFs with the strongest dynamics are selected. Selection is based on Dorsey Wright’s methodology and is based on technical and quantitative criteria. It occurs twice a month, then the rebalancing to the target weights of 20% in each ETF is carried out. Here is the link for studying the details: https://bit.ly/2niFqgx
If you compare the dynamics of FV with the dynamics of MTUM, then over the past year, he beat the S & P-500 index «only» by 2.7%, and not by 6%. In our opinion, for three main reasons. First, the dynamics of the ETFs that make up the FV fund are more blurred than the dynamics of the concentrated portfolio of stocks. Secondly, in the FV fund, the final investor gets a double management fee (both from the fund itself and from the underlying ETFs). Finally, thirdly, rebalancing twice a month is a decent transaction costs, which «bite off» a decent piece of profitability.
Nevertheless, the fund is quite popular, its NAV is 2.8 billion dollars with a combined commission for investors 0.89% per annum (6 times higher than MTUM). It can be assumed that he is preferred by more conservative investors in comparison with MTUM. FV is inherently more flexible than MTUM. After all, in theory, during periods of protracted bear markets, the FV portfolio will include bond funds, which by formal features will become «hotter» in the crisis than stock funds. And in the case of MTUM, the asset class of «shares» will remain the same, only the composition of the fund will change, and the excess from Technology will go to the benefit of, for example, Consumer Staples and other «protective» sectors.
Therefore, at least, the FV fund deserves to be able to help its dynamics in different phases of the market, and then compare it with MTUM for the final choice.