The ASX Momentum strategy works on the idea that stock prices that have risen significantly over the past, relative to their peers, tend to continue to outperform. This is known as the momentum effect and has been examined extensively in the academic literature. This strategy takes advantage of this effect by buying the top 5 momentum stocks in the S&P/ASX 100 index.
Latest Update – 16 March 2020
Today the ASX Momentum strategy needs to be rebalanced as per the monthly schedule. As previously flagged to members, we have increased this to a 10-stock portfolio but members wishing to trade with 5 stocks can continue to do so. To help facilitate the change, we will split today’s advice depending on which version you wish to follow:
For those continuing with 5 stocks: The action required for today is to sell Magellan Financial group (MFG), Afterpay Limited (APT), Fortescue Metals Group Limited (FMG), James Hardie Industries (JHX) and JB HI-FI Limited (JBH).
Using the sale proceeds from these five positions, we need to take up a position in; CSL Limited (CSL), Resmed Inc (RMD), Domino’s Pizza Enterprises Limited (DMP), Northern Star Resources Limited (NST) and TPG Telecom Limited (TPM).
For those holding 10 stocks: The action required for today is to sell; Magellan Financial group (MFG), Afterpay Limited (APT), Fortescue Metals Group Limited (FMG), James Hardie Industries (JHX), JB HI-FI Limited (JBH), Xero Limited (XRO), Carsales.com (CAR) and Aristocrat Leisure Limited (ALL).
The next step is to use the sale proceeds to add to the portfolio an approximate $5,000 allocation in; Domino’s Pizza Enterprises Limited (DMP), Northern Star Resources Limited (NST) and TPG Telecom Limited (TPM), Woolworths Group Limited (WOW), A2 Milk Company (A2M), Challenger Limited (CGF) and Goodman Group (GMG).
During this rebalance, only 9 companies met the criteria needed to be assigned to the ASX Momentum portfolio. For this reason, it is advised that any remaining capital from positions sold , not allocated to one of the seven companies bought today, is held in cash until the next rebalance.
From the positions sold the approximate profit and loss was as follows; Magellan Financial group (MFG) declined -31%, Afterpay Limited (APT) retraced -40%, Fortescue Metals Group Limited (FMG) returned 10%, James Hardie Industries (JHX) loss -7% JB HI-FI Limited (JBH) marginally declined by -2%, Xero Limited (XRO) managed a 4% gain, Carsales.com (CAR) sold off -15% and Aristocrat Leisure Limited (ALL) pulled back -18%.
As a reminder, this strategy rebalances on the 15th of each month (or the next business day if the 15th is a non-trading day). For specific details of closed trades, please see our closed trades page.
For historical trade updates please click here.
|Stock code||Stock name||Rank||Qty||Entry date||Entry price||Current price||Current value||Return percentage|
The A2 Milk Company Limited
|318||16 Mar 20||$15.71||$17.04||$5,418.72||8.47%|
|753||16 Mar 20||$6.64||$4.67||$3,516.51||(29.67%)|
|17||17 Dec 19||$278.12||$319.96||$5,439.32||15.04%|
Domino's Pizza Enterprises Limited
|90||16 Mar 20||$55.36||$49.97||$4,497.30||(9.74%)|
|363||16 Mar 20||$13.76||$13.08||$4,748.04||(4.94%)|
Northern Star Resources Limited
|450||16 Mar 20||$11.09||$12.04||$5,418.00||8.57%|
|227||17 Dec 19||$21.93||$25.00||$5,675.00||14.00%|
TPG Telecom Limited
|613||16 Mar 20||$8.15||$7.40||$4,536.20||(9.20%)|
Woolworths Group Limited
|134||16 Mar 20||$37.05||$35.81||$4,798.54||(3.35%)|
*Quantities are based on investing $5,000 per stock on the entry date
ASX Momentum Strategy
The ASX 100 index contains the largest 100 companies listed in Australia and therefore provides an excellent pool to find large capitalisation stocks that may exhibit the momentum effect. By searching this universe for stocks that have risen the most over the prior 6 to 12 months, we are banking on the previous momentum persisting for a good proportion of the chosen stocks.
Of course, not all trades will be winners, but according to the back-testing, the strategy closes 54.5% of trades with a profit and produces an average return of 17.9% for these trades. On the other side, the average loss per losing trade is only -6.8%. These statistics show why the strategy can produce a market-beating return over the long term, but they also show that it only works when an investor buys the entire portfolio. Picking and choosing individual stocks from this table has a reasonable probability of selecting a losing trade. Similarly, adjusting the portfolio when the strategy re-balances each month is essential to make sure you hold the optimal portfolio of stocks.
How To Follow This Strategy
Rivkin’s strategies are designed to be as easy as possible for investors to follow. To follow the ASX Momentum strategy, investors need to buy the stocks in the above table in equal weights. Weights can drift over time as stock prices move, but we only recommend re-balancing stock weights if they stray too far from the target weight (20% per stock). The stock volumes shown in this table are based on a $5,000 investment per stock which produces a $25,000 portfolio.
Once per month, the list of stocks will be updated in what we call a ‘re-balance’. This means investors will need to look at the new list and sell any stocks that are no longer on the list. After these stocks are sold, the new stocks from the current table can be bought.
About The Strategy
The ASX Momentum strategy was developed by Rivkin during 2015 and was rolled out as a strategy to clients in May 2016. Extensive back-testing was done to create and refine the strategy, and it is this back-testing that we rely on to give us increased confidence about future expectations. Please click here to find out more about the strategy.
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