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

Social Security trustees see one less year in insolvency countdown, project shortfall to start 2034
Social Security trustees see one less year in insolvency countdown, project shortfall to start 2034

New report shows dimmed outlook for benefits to retirees and disabled Americans, creating further pressure for federal tax hikes or more borrowing.

NY Republican Stefanik presses SEC to probe Harvard bond sale
NY Republican Stefanik presses SEC to probe Harvard bond sale

Open letter to SEC Chair Paul Atkins questions whether the Ivy League university withheld material information prior to its $750 million taxable bond offering.

Ex-LPL leader re-emerges at The Wealth Consulting Group
Ex-LPL leader re-emerges at The Wealth Consulting Group

The Las Vegas-based hybrid RIA overseeing $8.8 billion in assets has named Andy Kalbaugh president to help scale its advisor platform.

Envestnet extends investment offerings with new alts model portfolios
Envestnet extends investment offerings with new alts model portfolios

The wealth tech giant – in collaboration with Fidelity, BlackRock, State Street, and Franklin Templeton – is offering its advisor and wealth firm users more ways to diversify.

Just as wealth industry M&A was picking up, economic uncertainty could kill it again
Just as wealth industry M&A was picking up, economic uncertainty could kill it again

Deal volume increased post-election but now caution has taken over.

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.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave