QMOM
Alpha Architect U.S. Quantitative Momentum ETF
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Can anybody explain QMOM and how it fits in a portfolio?
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I'm surprised that you evaluate QMOM by its YTD, and that you assume momentum factor is the newest fad, despite there has been studies in the last decade. Suppose YTD is one of the ways you evaluate equities, may I ask what you're holding at the moment that fit your preference?
AVUS & QMOM. Historically value and momentum have been the highest returning factors.
Good point re: Japanese stocks on fire. I’ll do some factor regression on Portfolio Visualizer for IMOM vs IMTM as I’d really like to add some int’l momentum with QMOM, but also wondering if my Avantis ETFs are enough from a simplicity standpoint (since they do take into consideration momentum when buys/sells are made)
It hasn't worked historically in Japan, doesn't mean it won't now! If it is 30% of IMOM that means Japanese stocks it holds are on fire. IVAL & IMOM are both highly dynamic in country weights so this isn't a longterm thing. IVAL is 50% Japan last I looked.. cheap stocks with high momentum is the ultimate combo. No good reasons for the attribution, but the fair thing to compare to would be other ex-US momo funds like IMTM, not QMOM... Still underperforming but not nearly as much.
I saw something on X about how momentum doesn’t work well in Japan, but that’s 30% of IMOM top holdings. Any idea why it has been such a dog vs QMOM?
Maybe ride the momentum wave with QMOM or IMOM
I use the traditional academic definition of momentum. That is looking at the last 12 month returns and excluding the current month return. So if you were doing it today you would take the returns from September 2023 through August 2024. Then you rank them by the highest return. The reason you skip the most recent month is because momentum reverses on the short term and those names will basically pull back before moving higher again. For std deviation I use the daily return and then just use the excel function. My process is using yahoo finance and a python script to pull down the daily closing prices for all of my stocks (I asked chatgpt to write it and it took 5 minutes). I have my script create a csv file and then I copy and paste that into my excel file that does the grading with formulas and macros. The portfolio I posted was rebalanced on August 28th and is up 6.7% compare dto the S&P being up about 1.35% over the same time. That's why I do all this extra work. There are some other options that are good like AQR's large cap momentum fund and alpha architect's QMOM etf. Both have strong returns the trade off is higher volatility. In September my portfolio lost 7% before it was up almost the same 7% meaning we moves almost 15% in 4 weeks.
I do enjoy the pod. If you really wanna get weird I’ll recommend the rest of my port, QVAL, QMOM, IVAL, IMOM.
Only in the US would someone say “x is basically every domestic stock, you can’t get more diversified than that”! Seriously, buy at least market cap weight ex us, developed and developing. I’d also consider some systematic ETFs. Small cap value (avuv) is paying out right now. Momentum (QMOM/IMOM) has been paying out, and if well implemented should keep paying out once the algorithm picks up on the new gainers (assuming the rotation into small caps is here to stay). Other factors such as quality/profitability can be captured in ETFs and tend to outperform, particularly in a downturn. Finally, you could add some alternatives. DBMF replicates the performance of a basket of top commodity trading hedge funds. AQR have good systematic strategies with good returns uncorrolated to equity markets (e.g. QDSIX)
If you like that return profile I’d opt for something more evidence based like concentrated momentum. QMOM for example was highly correlated during the run up but got out before the crush.
QVAL, AVUV, and QMOM too. Plus a 100% overlay of 20% vol managed futures. Good luck!
With the recent price reduction to 29bp for their US funds, and monthly rebalancing (a rarity for momo funds, only Vanguard's VFMO which can rebalance daily beats it) makes QMOM an incredible value for concentrated momo. Can hold \~1/2 as much as you'd hold in MTUM to get same momo exposure, leaving room for other funds/strats.
We see someone likes Alpha Architects.. I always think about dabbling in QMOM, but I can never pull the trigger.
QVAL, AVUV, QMOM, IVAL, AVDV, IMOM, AVES and a bunch of commodity and bond futures (long/short trend following). Overall 100% equities 100% exposure to a \~20% volatility managed-futures program. No S&P500 in sight...
0%. You want more risk? Hold small-value (AVUV), maybe momentum (QMOM), or even add a managed futures overlay (RSST is 100% S&P500 plus 100% trend overlay). And don’t forget foreign stocks (AVDV, AVES, IMOM, etc).
Small value is the right answer if you want to be aggressive and seek higher returns. As-is you’re performance chasing. Here are some ideas though. RSST is a very new ETF but well designed. For every $1 you put in you get $1 of S&P500 exposure plus $1 of managed futures (replicating SG Trend index). Historically it had lower vol, lower drawdown, and beat S&P500 by ~3%. Replace your existing VOO with it and you’ll maintain that exposed but stick the trend on top. QMOM is a concentrated systematic momentum fund. Value would diversify you more, but this is worth a shot.
Wouldn’t chasing winners be a momentum fund, like VFMO or QMOM? think OP is talking about chasing high revenue growth
VOO and SPY track the same index (500 largest U.S. companies). VOO has lower expense ratio and SPY has more volume. Pick VOO for buy and hold. Pick SPY if you plan to play with options. QQQ tracks Nasdaq 100 index which historically has been very tech heavy (but is not necessarily guaranteed to be tech heavy in the future). Buy QQQ if you’re very bullish still on large cap tech stocks. VIGAX is a mutual fund focused on large cap growth stocks. Somewhat similar philosophy to QQQ but tracks a different index and is a bit more diversified across all types of large cap growth. Managed ETFs vary in quality. Most will have considerably higher expense ratios than passive funds. Methodology will also vary wildly. You have everything from factor focused funds backed by academic research (AVUV/QMOM) to people just trading stocks without any strong rules based methodology (ARKK).
Sounds like you might prefer a momentum strategy. That tends to work reasonably though the turnover is high. ex QMOM, MTUM, VFMO.
The FFTY ETF captures the following factors according to a quick screen on FF5 + Momentum: 1.20 Beta, 0.38 Size, 0.38 Momentum It also has tended to capture unprofitable and aggressively leveraged stocks. This is VERY similar to the ETF QMOM, with its 1.27 Beta, 0.53 Size, and 0.62 Momentum loadings. Even the profitability loadings are similar, at 0.54 and 0.55 . So really I'd argue that FFTY may just be a Momentum strategy with more aggressively leveraged companies. This also means that when overlevered and unprofitable companies got punished the ETF got punished right alongside them. In addition, QMOM has outperformed this ETF over QMOM's full lifespan with half the drawdown. I assume this is due to implementing 'frog in the pan' screening for less volatile Momentum that's less likely to reverse.
It's a momentum stock in the ETF QMOM that has been a top performer for awhile now. So yeah, checks out for now. If the Momentum runs out though...
No. I would pair it with profitability and Momentum and size... ...All things Avantis already does to an extent. If you wanted a diversifier you might throw in a 40% or lower allocation to QMOM/IMOM
Maybe use a Golden Butterfly approach: 20% GLDM 20% VGSH 20% VGLT 20% stockpicks or VTI or QMOM 20% VBR or AVUV or DFSV That way you have the portfolio overwhelmingly tilted to assets less likely to downtrend at the same time as your stockpicks.
Maybe $QMOM over tech. QMOM usually holds the up and coming stocks which performance chasers get fear of missing out over.
Honestly can just use QMOM to figure out a lot of their Top Picks. Most their buys are Momentum plays from what I have seen.
Would probably be better off just investing in a Momentum fund like QMOM/IMOM so you get exposure to whatever has been doing well recently. Have none of the FOMO since you know you have dedicated exposure to the latest 'buy this stock now' industries that are a legitimate buy. Then when stockpicking would provide Alpha you'll generally achieve it. Past performance example: https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=QMOM&allocation1_1=100&symbol2=VTI&allocation2_2=100&symbol3=BJK&allocation3_3=100
Y'all should really just buy QMOM and go back to your day job.
I would just invest in Energy through a Momentum ETF like Investors $DWA or Alpha Architect's $QMOM if you want exposure to other things as well, with the ability to switch out of Energy when it's doing poorly.
Over the next 20 - value and momentum investing typically. Some ETFs include MTUM, VFMO, QMOM for momentum and AVUV, DFSV, QVAL for value. Could simply allocate 10% to value, 10% to momentum, and 80% to a market fund like VT and be expected to outperform Next year or so - safer cash-like investments, probably
VFMO was included in the comparison. This limits the results to a start date in March of 2018. The point was to see how the three funds compare in their ability to track the academic Momentum factor after-costs. Looking at the funds aside from the factor returns (which QMOM was shown to track more accurately than the others after all costs), there was indeed outperformance from MTUM prior to 2018 when the size effect (MTUM is limited to large caps only, unlike QMOM) gave it a nice headstart that currently persists in the live returns, albeit only slightly. If you look at live returns including VFMO in the comparison, MTUM drops off completely from both a risk-adjusted* and realized returns perspective. This is explained by its limitation to large cap only and the semiannual rebalance methodology rather than QMOM or VFMO's faster quarterly rebalancing. As a result, MTUM took on the worst drawdowns and worst years even when we compare QMOM and MTUM over the full 2016-2022 period. As a last step, let's look at a factor regression. When using a factor regression on the four factor model we find QMOM has a significant 0.68 loading to the Momentum factor (MTUM has a significant 0.37) and a significant 0.76 loading to the Size factor (MTUM has an insignificant -0.02 loading). This aligns with what I said earlier regarding the size effect explaining differences in returns. At the same time, QMOM exhibits positive excess rolling returns over the four-factor model clone of it. However, MTUM has negative excess rolling returns relative to its four-factor model clone. Again, MTUM is not living up to expectations when measured by its ability to track the Fama French factor returns. *It doesn't make sense to compare risk-adjusted returns when looking at an individual fund on its own rather than a holistic strategy fit for your personal situation IMO. That's not what risk-adjusted return measurements are intended for.
Fama French research data is before trading costs. Live fund data is after real live trading costs and expense ratios: Annualized returns (%): 3/2018 to 9/2022 (latest momentum data on Ken French’s website). 5.5 = Fama-French (FF) Large Cap Momentum 5.2 = iShares MSCI US Momentum (MTUM) 8.8 = 50% FF Large Cap Momentum: 50% FF Small Cap Momentum 8.9 = Alpha Architect US Quantitative Momentum ETF (QMOM) 8.2 = Vanguard US Momentum Factor ETF (VFMO)
I would suggest going into a Momentum fund like QMOM if you want to be exposed to whatever happens to be hot while it's hot and then get out when it's not, moving onto the next big thing. The company behind it was interviewed discussing the fund here: https://pictureperfectportfolios.com/quantitative-momentum-investing-strategy-with-ryan-patrick-kirlin/ In addition, its live returns match about 1:1 after costs with the returns of the academic factor Momentum.
How an investor implements trend is highly personal to their beliefs. I view it as an additional form of diversification, superior to Emerging Markets diversification due to a higher degree of certainty and lower degrees of risk offered(better investor protections in developed markets). On Momentum fees let's look at the data. FamaFrench data is before trading costs while live fund data accounted for trading costs and expense ratios: Annualized returns (%): 3/2018 to 9/2022 (the latest momentum data on Ken French’s website). 5.5 = Fama-French (FF) Large Cap Momentum 5.2 = iShares MSCI US Momentum (MTUM) 8.8 = 50% FF Large Cap Momentum: 50% FF Small Cap Momentum 8.9 = Alpha Architect US Quantitative Momentum ETF (QMOM) 8.2 = Vanguard US Momentum Factor ETF (VFMO) Then for AQR, a factor investing hedge fund... Annualized return (%): 3/2018 to 8/2022 (the latest momentum index data on the AQR website) 11.1 = 50% FF Large Cap Momentum: 50% FF Small Cap Momentum 11.07 = Alpha Architect US Quantitative Momentum ETF (QMOM) 13.1 = 100% FF Small Cap Momentum 11.0 = AQR US Small Cap Momentum Index
Thanks a lot. Two questions: Regarding asset location/allocation, how did you implement trend? When you delve into niche products like those, how do you view the higher fees (between 50-100bps)? I'm including QMOM/IMOM as well. (So far I'm 90% scv and 10% momentum, simply because the second tax advantaged account (rrsp) has a lower cap due to pension and I don't want to manage a portfolio across different accounts).
It's a bit in the weeds of his posts. [Here](https://www.bogleheads.org/forum/viewtopic.php?t=272007&start=2850) is the consideration for MTUM in taxable. [Here](https://www.bogleheads.org/forum/viewtopic.php?p=5284786#p5284786) is where he ended up going with growth/edv. I'm not doing it purely b/c of him, it's just supportive evidence. VFMO seems better than MTUM to me since it should capture mid and small premiums (it's 1/3 small and 1/3 mid). True that QMOM has outperformed
I don't recall that at all. I think you should check your sources on the Hedgefundie story... Especially since a couple people have tried impersonating him for clicks in the past. Also wouldn't do something just because someone else did it. MTUM's performance is largely due to its size constraint. During a period of large cap outperformance it did wonderfully. When large caps aren't favored, not so. A [quick comparison ](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=QMOM&allocation1_1=100&symbol2=MTUM&allocation2_2=100&symbol3=VFMO&allocation3_3=100) has QMOM beating out the rest by a wide margin. Both YTD and over the full timeframe available.
I like AA a lot. The diversification and ER of VFMO are appealing though. And the fact that it can take new inflows and invest in whatever is trending on a continuum is also appealing. Let’s assume the fund doesn’t close for now. My overall impression is that it would be a safer hold to go 100% VFMO than QMOM
VFMO is like QMOM but with more diversification and lower costs. It's also entirely US based. There is a real risk of fund closure for VFMO as the fifth smallest Vanguard fund overall, and VFLQ's (liquidity factor fund) closure was already announced for later this year. In addition, they recently let the top manager (Antonio Picca, now with Goldman) of the factor funds go and (while they did not change fund methodology) replaced him with a traditional active fund manager. I personally invest my factor investments in Alpha Architect's funds, as they're a growing boutique that bases their entire investment approach around factor investing and are happy to answer questions and meet with individuals 1 on 1 to discuss further etc. They're one of the most evidence-based firms out there imo.
20 years out generally pick an ETF with a strategy you believe in to automate it. Some examples: Highly diversified value : AVLV/ AVUV / DFAT / RPV etc. Concentrated Value : QVAL Concentrated Momentum: QMOM Highly diversified Momentum: VFMO Pretty diversified trend following: GMOM / VMOT etc.
QMOM and VMOT are the two I would look into.
Probably not, but this makes me think of Momentum, e.g. MTUM, QMOM, etc.
I would sell and look into an ETF such as MOAT if you want to maintain companies with economic moats. Or QMOM/QVAL are other ETFs worth a look for different strategies. Each of these ETFs I mentioned has only 50 stocks and uses systematic investing.
[Is that so? Guess I need to get my eyes checked.](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=QMOM&allocation1_1=100&symbol2=DURPX&allocation2_2=100&symbol3=DUSLX&allocation3_3=100)
hindsight bias, resulting, recency bias. You would have considered REITs horrible when this was down 90% and probably thought anyone investing in this was absolutely out of their mind to be doing so. REITs are a sector in stocks. Can just as easily find fantastic performing stocks in other asset classes. Doesn't mean that's expected to repeat and in fact [Do most individual stocks outperform Cash? No.](https://alphaarchitect.com/2019/08/do-most-individual-stocks-outperform-cash-no/) [If we look at the sector as a whole, we don't get as great of a result.](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=TotalStockMarket&allocation1_1=100&asset2=REIT&allocation2_2=100) To further prove my point on this as resulting from an individual stock we can look at a couple of the [top holdings of the ETF QMOM](https://etfsite.alphaarchitect.com/qmom/#holdings) and [find similar results](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=CALM&allocation1_1=100&symbol2=DLTR&allocation2_2=100&symbol3=AMT&allocation3_3=100).
Sent. > Also DBMF and KMLM both certainly did a lot in this current market crash. To distill DBMF down: Follow a diversified basket of whatever is trending up between different Equity Markets, Bond Markets, and Commodity Markets. Both long and short. Agreed. But when [cash beats you](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=RYMFX&allocation1_1=100&symbol2=CASHX&allocation2_2=100) for the entire life of the fund(15yrs), it's almost certainly a terrible investment. > If going off live returns you would probably prefer QMOM/AVUV over QVAL, or even just AVUV(AVDV/AVES) since it is very low cost. I don't have any idea why you think AVUV/SCV would be negatively correlated with the market.
If you want to seek out undervalued stocks there's a few routes people generally recommend as a good go-to: Avantis Value ETFs Alpha Architect Value (QVAL & IVAL) ETFs (highest expense ratio & most concentrated) Dimensional Fund Advisors (DFA) Value ETFs These have systematic strategies so they can sell stocks when they're no longer amongst the most undervalued by the system's criteria. Generally best to pick DFA and Alpha Architect or Avantis and Alpha Architect, or just stick to one of the three fund companies. Regardless, note that this isn't a get rich quick scheme. It's a 'slightly outperform the market over the long run with potential for deep drawdowns when the market isn't drawing down'. Can also look to Alpha Architect's Momentum funds QMOM and IMOM for a performance chasing type of strategy. Another to look into along that line of thinking is the MOOD ETF, brand new fund that combines momentum with relative sentiment analysis. Finally, if you want an automation of both Momentum and Value together with technical analysis's trend-following look into the VMOT ETF. Note: all Alpha Architect ETFs come with a 2% cut of the total transaction. Only go into these if you're sold for the long run and will not sell even if you end up down in the strategy by 60% with the market down less or not down at all. I.e. These aren't apples to apples comparable to a standard market strategy. If you prefer lower volatility stick to the market generally, add VMOT if you can stick with it for more diversification with lower drawdowns.
I would ask in the Rational Reminder Community's Portfolio Discussion thread since they're a global community that's pretty specialized in factor based investing. In the US people often have to use QMOM and IMOM for proper cap-agnostic Momentum.
What you are describing is performance chasing. Look into QMOM, IMOM, KMLM, and VMOT if you want to do it hyper conservatively.
You mentioned that you prefer to gain higher return as well. For the perfect split you seem to be after you might look to the Two Funds for Life strategy that uses a factor fund alongside your target date fund. 90% Target Date Fund/ 10% factor fund. You can find more info about this on PaulMerriman.com . He focuses specifically on Small Cap Value but there are (depending on the investment account) other options, as noted below. This can be cap-agnostic Momentum like QMOM or cap-agnostic value like QVAL or simple small cap value like AVUV, VIOV, DFSVX, etc. Doesn't matter too much. The main idea is to have it there to help boost long-term returns. Would also provide a home bias at a time when Vanguard currently matches the 60/40 split of the stock market between US and International Ex-US.
Depends on your goals tbh. If it's to get acquainted with investing in depth, Larry Swedroe's own book The Incredible Shrinking Alpha 2nd edition is fantastic. For understanding the QMOM ETF I would read their Momentum book For understanding their QVAL ETF I would read their value book. Can also check out their blog for various topics you might have questions on or email them directly.
Highest expected returns over the long run yet hardest to stick with would be via factor based investing. Some guy that goes by the name Spreadsheets retired last March. He is withdrawing only 2 to 4% a year from a portfolio of 20% QMOM 20% IMOM 30% AVUV 30% AVDV. 60% Value strategy 40% Momentum strategy. Long-only Generally the risk is that it has huge tracking error from the market. At the same time the large caps are overvalued relative to history so being in undervalued 'value' stocks kinda just makes sense... Do your own due diligence. Read the Alpha Architect books on Value and Momentum if you like learning from Data.
What portfolio did you end up going with? QMOM with AVUV looks interesting
Obviously not financial advice; AVUV/AVDV for small caps specifically RPV/IVLU for large cap value side QVAL/IVAL if someone wants a concentrated fund cap-agnostic (more expensive relative to the other funds above) All have extremely low overlap with VBR. VBR neither captures small nor Value effectively unfortunately. QMOM and IMOM worth looking into for anyone that believes specifically in Momentum and not just Value. Usually held at weighting of 60 Value: 40 Momentum. Pairs well with the above too. Tool for testing overlap https://www.etfrc.com/funds/overlap.php
You might be interested in value and momentum ETFs like QMOM, AVUV, QVAL etc. since they systematically find stocks with potential for strong forward momentum.
well for starters MTUM is a better implementation of momentum. but to your question once you design a factor portfolio, what you need to understand is how the rest of your portfolio decomposes into the factors, then decide what your factor allocation is, then use MTUM/QMOM to increase your exposure to the momentum factor.
The issue with momentum is turnover. High turnover means more friction, which still exists though to a lesser degree with zero commission trading . More capital gains events if it's in a taxable account. Momentum as a factor is supposed to have around 11% alpha but that drops to 3-4% after costs. The value premia is (or perhaps was) about 4% but has been negative to zero in recent years. Not sure how you'd get to 20. You can take a look at how AA's QMOM has done.
I'm not really sure myself for the US, VFMO and QMOM are good options, for international IMTM or IMOM. QMOM and IMOM are more concentrated(50 stocks equal weighted) and more expensive but you get higher momentum exposure with them. VFMO seems to be a really good overall momentum fund and pretty cheap. IMTM seems kinda ok.
Momentum/growth are not the same. Momentum can be in growth for some periods. But it can also be in value, whatever performed better in the 12-2 months timeframe. I'm currently considering adding a bit of momentum funds to the portfolio, but probably not much and I'm not sure about QMOM or VFMO and IMOM or IMTM yet. Avantis already implements "opportunistic momentum" because they will wait to buy a security with negative momentum and will also wait to sell a security with positive momentum. It is hard to tell how much moment this will capture in the long run.
Here is a good start if you want to know how well stock picking really works. https://youtu.be/AecvTErBQY8 Then you can follow the path down analysing funds by doing factor regression, compare diversified and concentrated funds and end up with 30% QVAL, 30% IVAL, 20% QMOM and 20% IMOM and a burned sofa.
Good eye. In terms of actual factor exposure, QMOM is probably the best I've seen. I think I'd still just [buy a large cap growth fund](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=MTUM&allocation1_1=100&symbol2=QMOM&allocation2_2=100&symbol3=VUG&allocation3_3=100) and call it a day. Avantis and DFA utilize Momentum at the time of their trades, so I'm satisfied with my "exposure" to it through that.
Identifying factors is one thing. Implementing them in a real world portfolio is another challenge altogether. In a nutshell, the Momentum factor is hard to capture and profit from in the real world after fees and the aforementioned trading costs and high turnover necessary to chase the factor. The Momentum premium decays quickly. [Dimensional found that](https://www.dimensional.com/us-en/insights/have-investors-benefited-from-momentum-strategies) “10–12 months after classification as high momentum, the excess return of upward momentum stocks was no longer positive on average.” They also looked at U.S. funds claiming to target Momentum and concluded that “the vast majority were unable to convert favorable premium performance into higher-than-market returns, after fees and expenses.” Basically, the Momentum factor premium can be simulated just fine in the lab, but can’t be captured – at least so far – in a live fund in a cost-efficient way that delivers excess return to the investor. Funds that attempt to capture Momentum include MTUM, PDP, QMOM, and IMOM. The performance of some of these funds can largely be attributed not to their capturing the Momentum factor, but simply to their exposure to market beta and large cap growth stocks, which have had a stellar run over the last decade. We can see this in the fact that the returns of these funds are not correlated with the actual Momentum factor. Moreover, long-short strategies that would provide the truest loading on Momentum are not available in the retail space.
Both of these were very insightful, thank you for sharing. Will be keeping an eye on QMOM.
I don't think you can use the last decade and consider that a data set of normal situations. [https://www.twocenturies.com/blog/2020/5/26/value-and-momentum](https://www.twocenturies.com/blog/2020/5/26/value-and-momentum) Also MTUM gets some momentum exposure but also has a lot of large-cap and low-volatility skew based on the methodology. If you want to look at an oldschool academic momentum strategy with deep exposure, take a look at QMOM. [https://alphaarchitect.com/2015/12/01/quantitative-momentum-investing-philosophy/](https://alphaarchitect.com/2015/12/01/quantitative-momentum-investing-philosophy/)
Buy QMOM I know that studies have shown actively managed funds based on portfolio strategies, including momentum, lose to the index in the long run, it's just hard to say no to +100% annual gains! Past performance blah blah, We experienced a recession 1 year ago, it ended so quickly due to the strength of the market overall. If you believe the bull market will continue, actively managed growth / momentum funds will continue to out performe the index. I'll keep pumping QMOM and ARKK funds until I'm nervous about a market pull back, then I'll go back to funding index.