The Leuthold Group’s March Green Book gave an update on factor performance over the past 12 months (ending Feb 2014):
Momentum has carried over its 2013 strength into 2014 with impressive back-to-back months to start the year.
Momentum was left for dead by many investors after the disastrous 2009, when the stocks that had underperfored the most rebounded violently off of the March lows. We felt then, and now, that abacking away from the factor after the damage had been done was a mistake. Since the end of 2009 no other factor comes close to the performance that Momentum has delivered.
Compounding the problem for investors that shunned Momentum is the fact that not much else has worked of late. The chart above shows performance for the last 12 months, and the only other noteworthy category is Sentiment, which is highly correlated with Momentum. Valuation and Growth have been noticeably absent.
The favorable environment for Momentum is also reflected in the performance of the PowerShares DWA Momentum Index (PDP) over the past year. We are the index provider for this ETF and the index is constructed using Dorsey Wright’s Point & Figure Relative Strength analysis.
Performance for the 12-month period ending Feb 28, 2014 is as follows:
Source: Dorsey Wright, Returns do not include dividends or transaction costs
For reasons that we frequently discuss in this blog, we believe that Momentum is the single most effective investment methodology over time. We also know that it does periodically go out of favor (during choppy/trendless markets and markets with major reversals in leadership). However, trends have been fairly stable over the past year and Momentum is capitalizing.
This Momentum strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Past performance is no guarantee of future returns. Potential for profits is accompanied by possibility of loss. See www.powershares.com for more information.
