CK Narayan
An interesting study of different types of funds managed by JP Morgan was part of their 2019 report released recently. Here is a slide from that report.
There are eight different fund types that have been assessed for annual returns from the period 2004 to 2018. Note that Momentum portfolio topped the list for the period taken as a whole! It also was the top performer four times in this 15yr-period, more so than any other type! Further Momentum portfolio was featured in the top 4 (out of the 8) in 10 of the 15 years, more than any other fund type (with MultiFactor matching it). It also featured as the portfolio with the highest return around 38% in 2017. (This was matched only by Cyclicals and Small cap). It was the worst performing fund type only two years (2006 and 2016). The worst return was in 2008, when every fund type lost money.
Other notable facts from the table are that quality did not top the charts at all on ANY of the years! That’s quite amazing considering that we are looking at 15 year span. If there is one thing that most experts harp on it is Quality. That quality should rise to the top would be something self-evident but here is data saying that it is not really so. In fact, Quality portfolio could make it into the top half of performers only 7 times out of 15. It also was the worst performer once!
MultiFactor portfolio has been another consistent performer, featuring 10 of the 15 years in the top four list. It also finished second to Momentum when taken for composite returns across the 15 year period.
Highest returns of 38% were given by Cyclicals(2009) Small Cap (2013) and Momentum (2017). Smallcap, MinVolatility and Momentum featured thrice each as the top performing fund type across the 15 year period.
Small Cap and Cyclicals have given negative returns on 5 occasions in the 15 years, more so than any other. All fund types had negative returns with Min Volatility fund being the least with just 1 out of 15 as being negative.
In line with its type, Min Volatility had the lowest volatility of all the fund types at 11.4% across the 15 year period. In comparison volatility was maximum in Small cap (18.6%), Cyclicals (17.2) and Momentum (16.4%). Surprisingly, Quality was not too far behind with 13.9% reading!
Conclusion is that momentum delivers! It is consistent, it delivers high returns when market enables it and does that more consistently than other types. Its volatility may be high but certainly not to the level that the added risks of volatility cannot be handled.
Plus Delta Portfolios, our PMS Service, runs both its schemes with a high Momentum quotient in stock selection and rebalancing. We also incorporate Growth parameters into our management, so in effect, it is multi factor. JP Morgan just proved our point with Momentum and Multifactor funds topping their charts! Call us if you are interested in being part of our PMS.
(The author is founder & CEO, Growth Avenues. Subscribe here)
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