Momentum investing has gained traction amongst investors as a strategy to capitalise on prevailing market trends to ride the market's natural upward momentum. It typically involves going long on equities and investing based on technical indicators that measure momentum such as moving averages and price signals. These steps would involve comprehensive and detailed research which some investors may not have the resources and time to do.
However with the listing of the country's first momentum-based smart beta exchange traded fund (ETF), local investors will finally have access to a local momentum strategy by investing in the TradePlus DWA Malaysia Momentum Tracker ("Malaysia Momentum Tracker" or "the Fund"). In just a single trade, investors can now gain exposure into 20 of Malaysia's highest momentum stocks which have consistently notched higher gains and demonstrate powerful relative strength.
What does Momentum Mean?
Momentum Factor - Captures companies with the highest upswing momentum. Basically, it refers to the tendency of winning stocks to continue to do well in the near term and reach higher highs.
How Does it Work?
As the first ETF in Asia Pacific to track the Nasdaq Dorsey Wright (NDW) Indexes, the TradePlus DWA Malaysia Momentum Tracker offers investors turnkey access to relative strength strategy empowered by NDW's global technical research by tracking the Dorsey Wright Technical Leaders Malaysia Index.
By scouring the universe of stocks listed in Bursa Malaysia, the smart beta factor applies a screening filter to select companies which exhibit the highest price momentum. This involves measuring the relative strength reading of the stock by calculating the ratio of the closing price of each stock to the closing price of the benchmark on a daily basis.
Each of this company is then assigned a momentum score, where they are then ranked and weighted equally in a customised index. Only 20 stocks with the highest momentum scores are then included as component companies of the index.
To derive momentum, the smart beta factor focuses on prevailing price movements and ignores insignificant movements such as small price fluctuations, timing factors as well as trading volumes. This ensures that the Fund only select companies that truly demonstrate relative strength characteristics.
Trend is your Friend
Some investors may be cautious about entering the market when it is trending upwards, but sometimes it is better not to go against the market's direction and just ride its momentum. As aptly put by astute investor, George Soros, "It does not follow that one should always go against the prevailing trend. Most of the time wer are punished if we go against the trend."
The Malaysia Momentum Tracker provides investors a momentum strategy focused on the performance of the domestic market through local companies that many are already familiar with.
Through extensive back-testing, this strategy has shown a strong historical trend by vaulting higher than the broader market and amplifying returns in a portfolio.
This can be seen in 2017 when markets were buoyed by synchronised global growth underpinned by a Goldilocks environment, where the Dorsey Wright Technical Leaders Malaysia Index leaped 51.9% compared to the benchmark FBM KLCI that rose 9.5%.
In 2014 and 2015, the Malaysia Momentum ETF even bucked the broader market direction and posted positive returns even though the benchmark KLCI closed in the red. This can be attributed to the smart beta factor which sidesteps the market-cap value of the stocks and instead invest in stocks based on its momentum attributed.
Chart 1: Strong Track Record for Malaysia Momentum Strategy
Table 1: Top 10 Holdings of the Dorsey Wright Technical Leaders Malaysia Index
A New Way to Invest in Malaysia
With the TradePlus DWA Malaysia Momentum Tracker, investors can position themselves to ride along with the recovery of the domestic market. By investing in stocks with the highest price momentum, investors would be able to gain exposure to companies that would truly reflect the recovery of the domestic economy. While the broader market direction has been somewhat lacklustre with mounting pressures from both internal and external forces, the strategy aims to sniff out opportunities using the momentum factor tilt to find trends and capitalise on them.
It may even be an opportune time for investors to gradually build their exposure into equities through a momentum strategy, as valuations have turned attractive following the indiscriminate sell-down of local stocks in Bursa Malaysia post COVID-19. The strategy has historically done well and performed even better during improving / recovery periods. Coupled with its low-cost attractiveness as an ETF, the Malaysia Momentum Tracker also provides investors the opportunity to capitalise on the movement of 20 stocks at a fraction of owning the full 20 names if they were to trade them on their own.
Feel free to contact the ETF team for more info, or reach out to us via any of the below platforms for more information.
Disclaimer: This article has been prepared by AHAM Asset Management Berhad (“AHAM Capital”) specific for its use, a specific target audience, and for discussion purposes only. All information contained within this presentation belongs to AHAM Capital and may not be copied, distributed or otherwise disseminated in whole or in part without written consent of AHAM Capital. The information contained in this presentation may include, but is not limited to opinions, analysis, forecasts, projections and expectations (collectively referred to as “Opinions”). Such information has been obtained from various sources including those in the public domain, are merely expressions of belief. Although this presentation has been prepared on the basis of information and/or Opinions that are believed to be correct at the time the presentation was prepared, AHAM Capital makes no expressed or implied warranty as to the accuracy and completeness of any such information and/or Opinions. As with any forms of financial products, the financial product mentioned herein (if any) carries with it various risks. Although attempts have been made to disclose all possible risks involved, the financial product may still be subject to inherent risk that may arise beyond our reasonable contemplation. The financial product may be wholly unsuited for you, if you are adverse to the risk arising out of and/or in connection with the financial product. AHAM Capital is not acting as an advisor or agent to any person to whom this presentation is directed. Such persons must make their own independent assessments of the contents of this presentation, should not treat such content as advice relating to legal, accounting, taxation or investment matters and should consult their own advisers. AHAM Capital and its affiliates may act as a principal and agent in any transaction contemplated by this presentation, or any other transaction connected with any such transaction, and may as a result earn brokerage, commission or other income. Nothing in this presentation is intended to be, or should be construed as an offer to buy or sell, or invitation to subscribe for, any securities. Neither AHAM Capital nor any of its directors, employees or representatives are to have any liability (including liability to any person by reason of negligence or negligent misstatement) from any statement, opinion, information or matter (expressed or implied) arising out of, contained in or derived from or any omission from this presentation, except liability under statute that cannot be excluded.
Warning Statement: A copy of the Prospectus for the TradePlus DWA Malaysia Momentum Tracker can be obtained at Affin Hwang Asset Management's (“AHAM Capital”) dedicated website at www.tradeplus.com.my. Investors are advised to read and understand the contents of the Prospectus dated 9 July 2020 for TradePlus DWA Malaysia Momentum Tracker before investing. There are fees and charges involved when investing in the fund stated herein. Investors are advised to consider and compare the fees and charges as well of the risks carefully before investing. Investors should make their own assessment of the risks involved in investing and should seek professional advice, where necessary. The price of units and distribution payable, if any, may go down as well as up and past performance of the fund should not be taken as indicative of its future performance. The Securities Commission Malaysia has not reviewed this material and takes no responsibility for the contents of this material and expressly disclaims all liability, however arising from this material.
You may refer to the Fund's Licensing Disclosure Statement & Conditions here.
