A Plethora of Momentum
slice, dice, shake and bake
If you want to see what perfect competition in asset management looks like, look no further than the US ETF space. At last count, there were more than 3,100 ETFs — 2,250 of them were equity oriented. Within this crowded milieu, there are about 50 momentum ETFs alone (The United States of ETFs [2011]).
Whenever the market is in a bull-run, half a dozen momentum ETFs emerge out of the woodwork.
MTUM 0.00%↑ remains the big kahuna in this space with over half the momentum ETFs’ AUM.
But it is going through a bit of a rough patch lately, leaving an opening for the rest of the pack.
However, if you already own $MTUM, should you switch? The tl;dr: No.
Even within the same strategy (momentum, in our case), performances wax and wane. There is no single implementation that can navigate every single market regime successfully. On closer look, the “winner” typically would’ve overoptimized for the specific market-regime or path that just happened to work in its favor in one instance. As an investor, you are better off with something that performs decently in a large number of scenarios and manages to survive left-tails.
Even within the top-5 momentum ETFs by AUM, there are large year-over-year performance differentials.
The best performing ETFs have seen large drawdowns as well — they all have struck different bargains between risk and reward.
While it may be tempting to ditch an underperformer and jump onto the one that is running hot, it is unlikely to be a winning strategy over the long term.
Markets this Week
Overall, Indian markets were flat…
… running out of things to pump.
While the US markets are in the grips of an AI hype-cycle…
… every company is an AI company…
… and Nvidia ($NVDA) stock goes parabolic for the second time.
If you didn’t lose money during the crypto pump, here’s your chance :/
More here: country ETFs, fixed income, currencies and commodities.
Links
Research
Event Time
Investors take for granted that returns are recorded in units of time, such as days, months, or years. Yet some time periods include unusual events that reasonably cause asset prices to change, whereas other periods are relatively free of unusual events, in which case returns mostly reflect noise. Based on insights from information theory, the authors rescale time into event units so that each return is related to a common degree of event intensity. Their analysis reveals that when returns are measured in event units, their distributions are more normal and their co-occurrences are more stable, which enables analysts to form more reliable inferences.
What Beauty Brings? Managers’ Attractiveness and Fund Performance
Funds with facial unattractive managers outperform funds with attractive managers by over 2% per annum. We next provide evidence that unattractive manager display better stock-selecting skills. We also show that good-looking managers attract significant higher fund flow especially if the funds are available on Fintech platforms where their photos are accessible to investors. Good-looking managers have greater chance of promotion and tend to move to small firms.
Wealth Destruction on a Massive Scale for Investors
This paper examines the striking disparity between buy-and-hold and investors’ actual returns in China, the largest emerging market. During 1990–2020, the annualized buy-and-hold return is 11%, whereas investors’ actual return (dollar-weighted return) is 5.8%. The difference is 3.5 times those of developed markets and implies a wealth loss of US$2.9 trillion, 1/4 of the market capitalization in 2020.
Economy
The unstoppable force of global growth is on a collision course with the immovable object of political incompetence. (sapientcapital)
India
Unseasonal rainfall, high base and weak exports dampened growth of economic activity to 13-month low of 5.5% in April 2023. - ICRA Business Activity Monitor (@menakadoshi)
There has been a ghee shortage in the market since Diwali season 2022. At the heart of the matter is a rise in cattle-feed prices in the country without a commensurate increase in milk prices. This is making dairy farming unviable for dairy farmers and reducing growth in milk production. (livemint)
Amazon Web Services (AWS) has announced plans to invest $12.7 billion into India between now and 2030, bringing its total investment to $16.4 billion over a period spanning almost a decade and a half. (techradar)
China
Triangular debt arises when delayed or partial payments leave companies owing money to each other and to their banks. It discourages production and investment and the resulting liabilities or bad loans can put a damper on growth and exacerbate financial risks. Overdue payments totalled more than US$967.8 billion by the middle of last year. (scmp)
A dozen poor countries are facing economic instability and even collapse under the weight of hundreds of billions of dollars in foreign loans, much of them from the world’s biggest and most unforgiving government lender, China. (fortune)
Is China’s recovery about to stall? Lacklustre imports, soft inflation, the failure of manufacturing to match the strength in services and jobless youngsters. (economist)
Europe
The real estate crunch has arrived in Europe with prices in Germany actually falling.
The number of newborns in Italy has been in steady decline since the 2008 financial crisis, with the average number of children for each woman standing at 1.24 as of 2020 – among the lowest fertility rates in the EU. At the same time, the population is rapidly ageing – the number of centenarians in Italy has tripled over the last 20 years to 22,000. (theguardian)
European Union upgrades outlook for economy as energy prices retreat (CNN)
Odds & Ends
People taking Ozempic for weight loss say they have also stopped drinking, smoking, shopping, and even nail biting. (theatlantic)
Orcas have sunk 3 boats in Europe and appear to be teaching others to do the same. (livescience)
Muscle mass is critical to aging well. The more muscle we deposit into our muscle bank, the more we get to withdraw as we age. To be a kick-ass 80yr old, you had to be a kick-ass 50-60yr old. Heavy weight is not required. Pick a day, and start. (howardluksmd)
Meme of the Week
"While it may be tempting to ditch an underperformer and jump onto the one that is running hot, it is unlikely to be a winning strategy over the long term." - So momentum over momentum ETF is a bad idea