The cyclical rally of the past half year may have reignited the debate about value stocks, but it has also had a knock-on effect on other investment styles. Having already fed into associate editor Algy Hall’s blue-chip momentum stock screen, a value tilt in momentum strategies has now become evident among funds such as iShares Edge MSCI USA Momentum Factor Ucits ETF (IUMO).
This exchange traded fund’s recent half-yearly rebalancing has seen it tilt heavily away from growth stalwarts towards cyclical names. Microsoft, Amazon and Apple have all exited the fund, having been among its top 10 holdings before the rebalance. The fund’s allocation to financials, meanwhile, has jumped from just 1.5 per cent of its assets before the rebalancing to 32.5 per cent. And its allocation to information technology stocks has fallen from 41.1 per cent to 17.7 per cent.
The half-yearly rebalancing means that the ETF should be positioned to capture any further gains from cyclicals, which rise and fall in tandem with the economy, although it appears to have missed some of the big earlier returns. So as you try to navigate the shift in markets you need to consider whether factor funds are serving their purpose. While targeting certain factors can deliver outperformance, executing this effectively via funds can be difficult.