About Portfolio
In dynamic markets, identifying and capitalizing on price momentum can be a powerful strategy for generating returns. xMomentum, our meticulously crafted momentum-focused portfolio, is designed to do just that. We employ a rigorous quantitative approach that identifies stocks exhibiting strong upward price trends, providing you with a dynamic and responsive investment solution.
Why Invest in Momentum?
Proven Phenomenon:
Momentum, the tendency of stocks that have performed well recently to continue performing well in the near term, is a well-documented phenomenon in financial markets.
Adaptive Strategy:
Momentum strategies are inherently adaptive, adjusting to changing market conditions and rotating into stocks that are currently exhibiting strong price trends.
Diversification Benefits:
Momentum can exhibit low correlation to other investment styles, such as value or growth, providing potential diversification benefits to a broader portfolio.
The xMomentum Advantage
Our approach is grounded in academic research and empirical evidence demonstrating the effectiveness of momentum strategies. We utilize a robust quantitative model that focuses on recent price performance to identify stocks with strong upward momentum. Our key momentum indicators include:
- 12-Month Price Performance (excluding the most recent month): Captures the longer-term trend of a stock’s price.
- 6-Month Price Performance (excluding the most recent month): Captures the medium-term trend of a stock’s price.
Quantitative Selection Methodology
The xMomentum portfolio employs a rigorous, quantitative model to identify stocks exhibiting strong upward price momentum. Our methodology is designed to be objective, transparent, and responsive to market trends. Here’s a breakdown of the key steps:
- Momentum Factor Calculation: We calculate a momentum score for each security based on its recent price performance. Specifically, we consider:
- 12-Month Price Performance: The percentage price change over the past 12 months, excluding the most recent month.
- 6-Month Price Performance: The percentage price change over the past 6 months, excluding the most recent month.
Excluding the most recent month helps to mitigate the impact of short-term reversals or noise in the price data.
- Data Preparation and Winsorization: As with our other factor portfolios, we implement a data quality check. To mitigate the impact of extreme outliers, we apply a winsorization process to the momentum scores. We rank the momentum scores within each country, and values falling below the 5th percentile or above the 95th percentile are capped at the 5th and 95th percentile values, respectively.
- Z-Score Standardization: We then calculate a Z-score for each company and for each momentum factor (12-month and 6-month). The Z-score is a standardized measure that indicates how many standard deviations a particular data point is from the mean of the distribution. This standardization allows us to combine the two momentum factors, even though they represent different time horizons. The formula for calculating the Z-score is:
Z = (X – μ) / σ
Where:
- X is the individual company’s winsorized momentum score.
- μ is the mean of the winsorized momentum scores (within the country).
- σ is the standard deviation of the winsorized momentum scores (within the country).
- Composite Momentum Score: We combine the individual Z-scores for the 12-month and 6-month momentum factors to create a composite momentum score for each company. Equal weights are assigned to create this composite score.
- Portfolio Construction: Companies with the highest composite momentum scores (indicating the strongest upward price trends) are considered for inclusion in the xMomentum portfolio, subject to liquidity and other portfolio construction constraints.
This systematic, data-driven approach allows us to identify and capitalize on stocks exhibiting strong price momentum, providing a dynamic and responsive investment strategy. Our methodology is continuously monitored and refined to ensure its ongoing effectiveness.
Strategy Available For:
