This strategy was developed for investors who want to hold a portfolio of stocks that have been screened on company fundamentals. From this portfolio of stocks we expect strong company performance which we expect will lead to outperformance in their share prices.
About The Strategy
The strategy invests in listed ASX equities that fall within the S&P/ASX 100 index. The investment premise is to identify the strongest trending stocks in this universe and hitch a ride on their upward movements. This ‘momentum effect’ has been shown to produce market beating returns and is based on investor psychology of wanting to own stocks that have performed particularly well in the recent past. An added benefit of the strategy is that it naturally builds a cash position when markets aren’t trending strongly or are falling.
The ASX Momentum strategy has been developed and tested by simulating the investment performance over historical stock price data. This allows us to gather performance data based on how this strategy would have performed if we had run them during these prior time periods. The statistics in the table below summarise the results of this testing and compare them to the ASX 100.
|ASX Momentum Strategy||S&P/ASX 100 Accum Index|
|Construction||Five of the highest trending stocks from the ASX 100 in terms of price momentum||Free-float-adjusted market cap weighted, comprising 100 of the largest ASX stocks|
|Management||Rebalanced once per month on the 15th of the month||Rebalanced four times per year according to market cap and liquidity|
|Annual Average Return*||23.77% per annum, before fees||8.5% per annum, before fees|
|Worst 12-month Return*||-17.5% (May-2002 to May-2003)||-38.6% (Nov-2007 to Nov-2008)|
*As at 31 December 2018, based on 15 years of back-tested data
Minimum Investment Amount and Period
There is no specific minimum investment amount although as the portfolio holds five stocks the minimum brokerage charged by your broker can put a practical limit on the minimum investment size. For example, if your broker charges a minimum of $10 per trade, this would represent a 0.5% charge on a trade size of $2,000 (portfolio size of $10,000 for five stocks). Given an annual portfolio turnover of approximately four times, this would produce an annual brokerage charge of 4%. In this example, with a minimum brokerage charge of $10, we would recommend an investment of no less than $10,000.
Rivkin recommends a time horizon of at least three years for this strategy due to the possibility of a negative return in any given year. Based on the strategy back-testing, the probability of a positive return over any three-year time horizon is 96% and therefore having an investment time horizon of at least this much maximises the probability of a positive investing outcome.
Fees and Charges
Rivkin’s advice product attracts a fixed annual subscription fee that does not depend on the amount invested. Other than this, the only fees and charges relate to those charged by your broker for trading. Under this model, the more funds you invest in our strategies, the lower the annual cost on a percentage basis. This strategy is also offered in a Separately Managed Account version for which you pay a small management fee for us to follow the strategy on your behalf.
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