As members are hopefully aware, we recently made a change to the re-balance dates of our ASX and US Value and Momentum Strategies to simplify how our strategies are to be followed. Part of our rationale for making this change is that we believe it is in our members' best interest to follow both the Momentum and Value strategy together, instead of selecting just one.
Over the years, we have realised that Rivkin investors have been using Momentum and Value strategies together to have a growth portfolio with a similar return profile but lower short term volatility than the individual strategies. As a result, starting from November 2020, we have aligned these 2 strategies’ re-balance dates to set up two 14 stock portfolios for the Australian and US markets to make it easier for our members to implement.
Although Momentum and Value both involve a monthly ranking process to formulate the portfolios, each is ranked using very different methods. The Momentum strategies are based purely on the performance of the stock’s share price, whereby we hold the stocks that have been performing the strongest over the prior 6 to 12 months. On the other hand, the Value strategies’ criteria are based on key financial metrics, such a Return on Capital Employed (ROCE), and Accrual to Assets, from which the final portfolio is generated by ranking on dividend yield, whereby the lower the yield, the higher the ranking. In general terms, Value uses fundamental factors, while the Momentum strategy uses technical factors.
Typically, the portfolios are made up of different stocks, which means that the performance of the portfolios differs from month to month. However, the performance differences go deeper. Both ‘factors’ – that is ‘momentum’ and ‘value’ – go through periods of better relative performance, often based on the current market cycle. Momentum as an example does much better when the broader market is trending upwards and can struggle when the broader market is in a sideways to downwards trend. Because of this, holding both portfolios at once provides good diversification and greatly reduces the overall volatility.
To formalise this approach, we have decided to combine both strategies into a single portfolio, which we will call the “ASX Growth Portfolio” and the “US Growth Portfolio“. The underlying strategies will remain unchanged; however, we will display all stocks within a single portfolio. The challenge we currently face is that because both strategies are 10 stock portfolios, holding both strategies equates to holding 20 stocks which can be too many, especially for smaller trading accounts. As such, we will be reducing the number of stocks in each strategy from 10 to 7, meaning the ASX and US growth portfolios will be comprised of 14 stocks each.
We will continue displaying the 10 stock strategies for those members who wish to follow the strategies separately. However, our formal advice will relate to the 14 stock portfolios. Please note that the US growth portfolio will continue to be re-balanced on the 1st of each month, and the ASX Growth Portfolio will continue to be re-balanced on the 15th of each month.
If you need any additional clarification, please email us at [email protected]
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