Market participants likely digest new information more slowly than they should, causing a trend to develop as they incorporate that information into market prices. The most widely accepted reason for this anomaly rests with investor behavior. Key Risks Momentum strategies perform well when markets persistently trend in one direction, allowing past performance to forecast near-term future performance. Momentum strategies won't always find themselves so well-positioned to bear the brunt of a bear market. Their defensive stance heading into the new year was more coincidental than intentional. Both funds made that transition in the wake of the 2018 market correction, when defensive names had strong past performance, and they stuck to those allocations through the 2019 rally. MTUM and IMTM entered 2020 with heavy allocations to defensive sectors, including utilities, consumer staples, and healthcare, which provided some ballast as the market declined.Īs it turns out, their emphasis on defensive sectors heading into 2020 was not an act of clairvoyance. The circumstances surrounding the coronavirus sell-off were an exception. Momentum strategies typically struggle when the market abruptly changes direction because the historical stock performance they use to predict future performance is no longer relevant to current market conditions. Such an occurrence is unusual but not improbable. Its international sibling, Silver-rated iShares Edge MSCI International Momentum Factor ETF IMTM, beat the MSCI All County World Index ex USA Growth by 2.8 percentage points during that period. IShares Edge MSCI USA Momentum Factor ETF MTUM, which has a Morningstar Analyst Rating of Silver, kept pace with the Russell 1000 Growth Index. But momentum exchange-traded funds navigated that period fairly well. The coronavirus pandemic rocked global markets in the first quarter of 2020. Click here to download a complimentary copy. I ACKNOWLEDGE THAT I HAVE READ AND UNDERSTAND THIS AGREEMENT AND MEET THE CONDITIONS OUTLINED ABOVE.A version of this article previously appeared in the August 2020 issue of Morningstar ETFInvestor. Investment Company Act of 1940, or an institutional investor, or a Professional Client and Eligible Counterparty as defined by the FCA under the Markets in Financial Instruments Directive. Securities Act and a “Qualified Purchaser” within the meaning of the U.S. By your use of this website you confirm to Acadian that you are both an “Accredited Investor” as defined under Regulation D of the U.S. The content of this website is not intended for the use of retail investors. Acadian does not provide investment advice, tax advice, or legal advice through this website, and you agree that this website will not be used by you for such purposes. Further, our website and its contents does not constitute an offering or recommendation by Acadian or its wholly owned affiliates of any transaction, product or service, including securities transactions and investment management or advisory services. Our website and its contents are for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security that may be referenced on or through our website. Acadian assumes no responsibility for access to this website by any person located within a country or jurisdiction where such access would be contrary to any law or regulation in that country. The information provided on our website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Acadian, its wholly owned affiliates or any of its products to any registration requirement within such jurisdiction or country.
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