As the global economy continues to de-leverage, the next decade looks likely to be a period of weak growth and low interest rates, punctuated by bouts of heightened instability and crisis……
Jonathan Smith, UK Strategic Solutions
For professional investors and advisers only.This document is not suitable for retail
Although ‘chasing returns’ has a bad name, there is strong empirical evidence that asset class returns do trend and that, with careful construction, momentum based strategies can enhance risk adjusted returns. Furthermore, these strategies have performed particularly well in times of stagnation and crisis.
This paper examines the strategic case for momentum. It discusses:
— In which environments momentum strategies tend to outperform
— Evidence for momentum and why it exists
— The strategic case for incorporating momentum into portfolio construction
— The practical implementation of momentum strategies in an investment strategy
The main findings of this paper are:
— There are both behavioural and rational/market-based reasons for price momentum
— Momentum strategies have the potential to enhance risk adjusted returns across a wide range of asset classes
— Momentum strategy performance is negatively correlated with illiquidity and, as such, can be a valuable diversifier in times of market crisis
— Momentum strategies can be applied to multi-asset portfolios to help determine appropriate asset class weightings. Momentum can also signal when to de-risk or to put in place downside protection measures.
Disclamer
The views and opinions contained herein are those of the Azad Zangana, European Economist and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
For professional investors and advisers only.This document is not suitable for retail clients.
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Source: ETFWorld – Schroders
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