FIS Group Special Report: Momentum - Beware of the Double-Edged Sword

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The FIS Group Special Report titled “Momentum: Beware of the Double-Edged Sword,” analyzes situations where momentum can be either a significant tailwind or exacerbate risks and undermine portfolio diversification.

It’s key to cut through the noise and analyze the real driver for momentum in the market.

FIS Group, a manager of U.S. and global developed, emerging and frontier markets equity portfolio strategies, today issued a Special Report that discusses the challenges and opportunities of momentum investing. The report, titled “Momentum: Beware of the Double-Edged Sword,” analyzes situations where momentum can be either a significant tailwind or exacerbate risks and undermine portfolio diversification. The full report can be viewed here: http://www.fisgroup.com/momentum-investing

“It’s key to cut through the noise and analyze the real driver for momentum in the market, sector, or stock rather than focusing on investor sentiment” says Tina Byles Williams, CEO and CIO of FIS Group. “Understanding momentum is just as critical as looking both ways before crossing a busy intersection for a pedestrian.”

The Special Report looks at historical data and focuses on three key points:

  •     The significant return disparity during the past bull market, which stems from momentum
  •     How investor sentiment, measured by Bear-Bull spread and relative strength, is a poor indicator for momentum
  •     Momentum’s outsized impact in the last 16 months compared to other factors such as value

Momentum strategies may result in trade crowding, which occurs when multiple market participants with large pools of capital use similar investment strategies and trade in and out of similar positions. This reduces the future effectiveness of an investment strategy in predicting stock returns, and may also result in extreme levels of risk when investors experience negative shocks in other parts of their portfolios, forcing them to liquidate their positions. As more investors concentrate on the same factors, the degree of factor crowding increases; and at extreme levels, can result in “factor crashing” and significant performances drawdowns.

“We developed a factor crowding model to systematically discern factor crowding at the overall portfolio level,” says Byles Williams. “This is in addition to the analysis we do on our sub-managers’ investment processes and using our proprietary portfolio construction process to optimize fundamental factors, like momentum and value, within our strategies.”

In addition to Special Reports, Ms. Byles Williams contributes to FIS Group’s Market Insights Alerts, which are based on research that examines market conditions and Market Outlooks, which examine global economic themes and are published throughout the year. The last Market Insights Alert was published in November, 11 2016. Her full profile can be seen here: http://www.fisgroup.com/tina-byles-williams

About FIS Group

FIS Group is an investment management firm that provides customized manager of managers investment solutions for institutional investors. For 20 years, we have delivered risk-adjusted returns by conquering the complexity of identifying high skill, high active share entrepreneurial managers that have gone largely undiscovered by the institutional investor community. Unique among our peers, FIS Group enhances risk-adjusted returns by using macro strategy insights to allocate capital among the managers and/or through a global macro tactical completion strategy. Our culture is a fusion of relentless curiosity and a scientific, disciplined process.

For more information please visit us at http://www.fisgroup.com.

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Siaolan Albigese

Tina Byles Williams
FIS Group
215 567 1100
FIS Group

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