XC smallcase Portfolio: Quant Momentum

Momentum Investing is frequently considered as an overreaction to market information in opposition to the traditional Buy Low, Sell High approach.

Quantitative Momentum investing is an investment technique which chooses stocks whose price appreciated the most during a period (typically the recent year, ignoring the recent month).

The strategy is to work with volatility by looking for buying opportunities in smooth uptrends and selling when the stocks lose their momentum.

Momentum portfolios convey significantly high returns. The return potential of momentum portfolio is genuinely hard to grasp. It is thus not surprising that investors wishing to maximize their portfolio return potential will favour momentum portfolios.

Quantitative Momentum investing aims to benefit from market instability by taking short-term positions in equities that are rising and selling them when they start to fall. The capital is then moved to new positions by the investor.

The Xumit Capital Quant Momentum is for investors who can partake in the significantly high returns of momentum portfolio by using it as one of their investment vehicles, If they can withstand its high volatility.

Conservative investors could use the Quant Momentum model to diversify their current portfolios and in this manner reduce the overall volatility of their portfolio (because of the low correlation between value and momentum).

Momentum is certainly not a free lunch. The volatility of the momentum portfolio is fairly high. We can imagine no investor (not even ourselves) who might remain invested through such massive swings.

Even with our refined execution of momentum, where we’ve taken measures to decrease it. Our Quantitative Momentum model allows us to rebalance portfolio on monthly basis, a term which is greater than the yearly rebalance time frame.

It’s generally simple to develop instincts concerning why Value Investing outperforms. Retail investors’ mindset is irrational, and predictably so. It isn’t unreasonable that investors dump bad stocks too quickly.

Value investing thus capitalizes on the overreaction of investors to bad news. People place a bigger emphasis on bad news than on good news, and companies which have suffered from severe financial results are likely to see their stocks decline to a large extent.

Institutional investors do not like holding losing positions, and will often get rid of them, regardless of price, to chase other short-term returns.

But why does momentum outperform? Investors will in general underreact to good news. At the point when a company rises out of difficulty, its stock price rises.

Most investors will remain skeptical for a while, resulting in prices failing to realize the full potential of the company immediately. The doubt and dread will disappear over the long haul, bringing out slow realization of value

Quantitative Momentum Strategy Screener

Not every momentum portfolio was created equal. Not every momentum portfolio performs well.

Careful momentum implementation, one that relies on findings in recent academic studies, continues to perform well.

Our Quantitative Momentum strategy proposes several improvements to the momentum strategy which significantly boost returns.

The most significant one is instead of choosing the stocks with the highest momentum (returns during the last year excluding the most recent month), take the top set of momentum stocks and select the stocks with the highest momentum quality.

Stocks will appreciate slowly, without spikes and jitters, perform better with a smooth momentum. We have implemented a unique momentum quality factor that delivers the desired outcome.

By Aashutosh Chandra (aashutosh.chandra@xumitcapital.com)