Momentum stocks set for more pain as quarter ends

Momentum stocks set for more pain as quarter ends
Given recent declines, quantitative risk models are likely to send a sell signal, leading to additional losses, analyst says.
JUN 26, 2018
By  Bloomberg

The calendar and the computers are working against formerly high-flying momentum stocks. The iShares Edge MSCI USA Momentum Factor exchange-traded fund (MTUM) has given back 3.9% over the past three sessions. And Christopher Harvey, Wells Fargo's head of equity strategy, sees more downside risk for the fund and stocks linked to the momentum factor — the idea that stocks that have been rising are likely to keep rising. In light of the losses, quantitative risk models will be telling portfolio managers that it's time to cut their exposure to the momentum factor, so those stocks will face systematic selling, he said. What's more, most of those names — including the momentum ETF itself — are still faring better than the S&P 500 Index on the year and the quarter. That leaves fund managers in "a race against time" with only four trading days left until the end of the quarter, Mr. Harvey adds. That serves as "a significant short-term incentive to, at the margin, limit the bleed and hold onto existing relative performance" by way of taking profits in what once were the big winners. Technology stocks account for 40% of MTUM by market capitalization. Throw in Netflix and Amazon, which are listed as consumer discretionary, and that share rises to nearly 50%. Calling for this type of market shift is something relatively new for Mr. Harvey. "At the end of the year, we suggested there would be no great rotation from growth to value," he wrote in a note Tuesday. "During the Feb '18 selloff, we said there would be no tech/momentum capitulation from the big 'Long Onlys' and for the most part there wasn't." The strategist recommends that investors with a long-term horizon or fund managers looking to remove risk from their portfolios move into safer stocks like utilities, food, beverage, tobacco, and pharmaceuticals as well as the low-volatility factor.

Latest News

SEC bars ex-broker who sold clients phony private equity fund
SEC bars ex-broker who sold clients phony private equity fund

Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.

The key to attracting and retaining the next generation of advisors? Client-focused training
The key to attracting and retaining the next generation of advisors? Client-focused training

From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.

Chuck Roberts, ex-star at Stifel, barred from the securities industry
Chuck Roberts, ex-star at Stifel, barred from the securities industry

"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.

SEC to weigh ‘innovation exception’ tied to crypto, Atkins says
SEC to weigh ‘innovation exception’ tied to crypto, Atkins says

Chair also praised the passage of stablecoin legislation this week.

Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest
Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest

Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.