Today, more investors are pouring cash into passive strategies as they chase lower fees. In September alone, $12.7 billion went into equity passive funds, up from $8.5 billion the previous month.[1] In 2016, a record $287.5 billion was invested in U.S.-listed ETFs.[2] And, in the past decade more than $1 trillion has shifted from active to passive U.S. equity funds.
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In this tough climate for active managers, how can they fight back against passive strategies? It’s simple: outperformance. At Trendrating, we believe managers can intelligently incorporate momentum into the overall strategy, either as a stand alone factor or as an overlay. Momentum brings balance to the Disposition Effect, where human behavior makes investors take profits too early and keep losses longer than necessary. Markets get stretched and are never in equilibrium. Momentum helps cut out the noise. With momentum, there is a clear-cut systematic way to look at the trend. Integrating momentum instills more discipline into any portfolio management system.
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