Does anyone use momentum strategies?

I’m new to managing stocks myself. I have a SIPP that is invested separately through my IFA, but I’m looking at funding my SIPP more regularly and taking charge of those investments myself.

As I look on my SIPP as my ‘safe’ retirement investment, I’m looking to be more aggressive with my ISA, I’m still looking at a 20-30 year retirement horizon, so can afford to have a bit of fun also and accept some volatility.

Having said that In want to think a bit more strategically than just throwing money at the latest buzz stock.

I like the idea of using funds/ETFs in terms of doing a lot of the hard work and rebalancing for me as well as mitigating risk, so I’m keen to base most of my investments around those rather than individual companies.

I have done a lot of reading around momentum strategy, checking fund performance each month, looking at funds and sectors that are underperforming in comparison to the rest of the portfolio and switching these out for the best performing funds in the previous 1-3 month window.

Does anyone else follow a similar strategy?
Any tips, things to look out for?

It seems to be a very effective strategy in a rising market, but less so in a falling market. What advice can people give around this, what are typical trigger points into a move into cash, bonds or commodities?

I’ve looked at some Momentum ETF’s and they seemed to contain a lot of large cap companies similar to the S&P 500, so it didn’t seem to offer that much different to a normal index fund.

Personally I prefer to help find the smaller companies which are growing and have potential rather than seeking those which have already done well - for instance check out EWI Edinburgh Worldwide Trust, this has strong long-term performance.

Sorry, yes to clarify, I’m not looking specifically at momentum ETFs, but at sectorial ETFs.

So currently I have positions in Scottish Mortgage and Baillie Gifford US Growth, both of which are US tech weighted which has outperformed over the past 6 months.

Currently I’m looking at China and US small cap which is starting to outperform US large cap tech.

Welcome Matt,

It looks like you are going to have a lot of fun, playing the market. I’ve spent the year buying single stocks and very few ETFs as it has been a strange year. What ever works this year is unlikely to work in normal times, but then maybe this is the new normal.
I think in normal times Momentum funds work well looking at the charts. They tend to be invested in old world stocks though.
We are in an inflection point where some sectors are dying and new ones are emerging.
Look to the future and work that into your strategy.

We are also in a massive bubble. There is still lots of money pouring into the stock market so this will continue for a while. When it pops, bonds will be useless, the returns on them are dismal.

I would also like to know what signs to look for to tell me the bubble is about to pop

This article was the basis for a lot my my thinking

https://seekingalpha.com/article/4351771-simple-etf-portfolio-enhanced-momentum-strategies

Although rather than using the fixed set of funds discussed in the article I have been using Trustnet sector and portfolio rankings for a wider range of sector and fund options

https://www.trustnet.com/fund/sectors/performance?universe=O

I think this comes down to investment philosophy - I’ve got a portfolio of six figures across ISA’s and SIPP’s yet I am invested in less than 10 funds/shares in total… Once I commit to a fund I tend to stay with it for 3 years or more and focus on increasing my savings rate as much as anything… But that’s my investment philosophy, others obviously differ… But one thing I’d say is that we are in a period of big disruption, which may be the new normal now in any case, therefore I’m happy leaving pro’s like SMT or EWI fund managers decide which companies they think will be the disrupters… When I’ve compared the performance of the cheapest index funds to Momentum ETF’s there’s often not much difference so for me they haven’t made the case yet…

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