Performance Dispersion Among Momentum Based Portfolios
As we mentioned in our previous newsletter July 13, 2015: Pain in Tactical Portfolios, our momentum Tactical Asset Allocation(TAA) based portfolios have lagged behind popular domestic stock index (VFINX (Vanguard (S&P 500) Index) for several years now. However, as we detailed in several newsletters:
- September 8, 2014: Momentum Based Portfolios Review
- April 1, 2013: Momentum Over Stocks, Sector And Style Funds
- September 10, 2012: Taxonomy Of Momentum, Relative Strength And Trend Following
there are several levels of momentum driven strategies. The taxonomy of these portfolios is as follows:
- m1: A group of individual stocks such as Dow Jones 30 or Nasdaq 100 etc. — Can be Effective, but volatile.
- m2: A group of industrial stock funds such as Fidelity’s famous Fidelity Select funds. – Can be Effective, but volatile.
- m3: A group of stock sector funds such as SPDR’s S&P sector ETFs such as SPDR Select Energy (XLE) etc. – Can be Effective, but volatile.
- m4: A group of stock style funds such as Russell large, mid and small cap stock ETFs. – Effective and comparable risk.
- m5: single stock index (fund) buy/sell decision. – Fickle though might be on par with buy and hold.
- m6: A group of diversified and somewhat uncorrelated asset classes such as stocks, bonds, real estates (REITs) and their minor asset classes such as long term bonds, international bonds, gold etc. – Effective and lower risk.
At MyPlanIQ, we always advocate the momentum driven strategy at asset allocation level, or m6 in the above categories. This is what our Tactical Asset Allocation(TAA) strategy is based on.
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