Passive Managers

Momentum is a key component when implementing a multi-factor smart beta strategy

According to a report from Goldman Sachs Global Investment Research, the current market share being invested in Passive Funds currently stands at roughly 34 percent, with net purchases of Index Funds growing over $1 Trillion since 2008, while Active Funds have seen $600 Billion siphoned elsewhere.

It’s becoming more and more prevalent for institutions to construct portfolios that leverage the premia of various risk factors such as value, size, momentum and volatility. While a multi-factor approach is prudent, academic research suggests that the factor that demonstrates the best risk-adjusted returns is momentum. A recent research paper, Fact, Fiction and Momentum Investing by Moskowitz, Asness and Israel (May 2014), shows that managers can improve the efficiency of their portfolios by incorporating momentum strategies. Including momentum to enhance smart beta portfolio construction can no longer be ignored.

Benefits for Passive Managers

  • Actionable ratings on over 15,000 global equities, indices, sectors, ETFs, currencies & commodities across 50 countries
  • Captures positive and negative momentum earlier than legacy models
  • Filters out market noise better than trend following technical indicators in order to avoid high turnover and fees
  • Improves investment performance while reducing risk

Supported Tasks in Trendrating

  • Supports optimal allocation across an index based on the strength of momentum on individual stocks
  • Run a momentum overlay on any existing strategy to rebalance weekly, monthly or quarterly
  • Get momentum alerts on all index components as ratings change to outperform the overall benchmark
  • Customize smart beta strategies by maximum holding percentage, weighting, market cap, volatility and tilt strength