Investors are constantly told to buy low, hold on for the long term, and not to chase performance – so a strategy that chases performance is counter intuitive and can be dangerous if you don’t know what you’re doing or why you’re doing it. Momentum investing is all about chasing performance, but in a systematic way, with an entry and exit strategy in place. A rules-based approach is crucial to avoiding the risks and psychological pooh traps that await the investor who allows emotion to cloud their judgement.
On a macro level, momentum investing can be as simple a concept as buying into a bubble, such as the dotcom/tech bubble of the late 90s. Those investors who saw the opportunity made lots of money by chasing the performance of tech and internet stocks during those few years, but those without a clear exit strategy lost it all again when the bubble burst.
As momentum investing requires a greater than average frequency of trading activity, from a pension drawdown perspective it is only really practical to pursue momentum investing with funds, and to do so on a platform that does not charge a fee for frequent trading. To do so with individual equities, incurring the trading costs and the spread each time is very high risk and IMHO is best left to the expert investors.
So, how can you easily gain access to momentum investing within your drawdown pension? There is one tool that specialises in just this. Saltydog Investor is not an investment platform per se but it is a great complement to your investments if you are the sort of person who likes to follow investment trends and invest on positive momentum.
Disclosure: I use the Saltydog Investor web site for monitoring my own investments and helping me to make investment decisions.
Their philosophy is based on the premise that trading on positive trends and momentum can deliver superior results, and their approach certainly seems to deliver results. They have two model portfolios, created using their investment philosophy of momentum investing. Their ‘tugboat portfolio’ has increased by 48% since launching in 2010 and they provide a weekly comprehensive update to members with extensive and easily accessible data for over 21,000 UK Unit Trusts and OEICs.
In their own words, “Saltydog Investor provides comprehensive and up-to-date performance data on funds. In our analysis we group, sort, and rank them, so that you can easily see which funds are performing well at the moment, and make informed decisions about your investments”.
Saltydog is a subscription service. However, they do offer a two month free trial of their system and you can sign up for it here. As with all such trials you need to remember to cancel the subscription within the 2 months if you don’t want to be charged.
If you just want a thoroughly comprehensive, real-time review of the top decile funds in every sector delivered to you each week, then Saltydog Investor web site is great for that. In particular I like their focus on funds in the top decile of the relevant sector, which means that you are looking at the top performing 10% of funds in the sector.
We talked about Saltydog in the Investment Ideas section in relation to Poprtfolio Monitoring, as their information and data give momentum traders the information they need to manage their investments, with a view to buying into those sectors or funds that are ‘on a roll’.
Saltydog provides a brilliant tool to do this based upon their weekly analysis of the decile performance of over 21,000 funds. Most of the time all the funds in a particular sector roughly track the same performance, as you can see from this 26 week chart of the funds in the Global sector.
There is only a 0.5% difference between the performance of the 6 best performing funds over a 26 week period, so it doesn’t really matter which one you invest in.
But if you look at the performance of Absolute Return funds for the same period you can see that the CF Eclectica fund has dramatically outperformed its cohort over 26 weeks, delivering over 15% more growth than its nearest competitor and 25% better performance than the pack.
If you had decided that an Absolute Return fund was a part of your investment strategy, why wouldn’t you want to choose the best performing one?
Of course, it is the nature of investing that non-professional investors will normally only invest once the outperformance trend has been identified, and will probably sell out after the period of outperformance has come to an end. However, Saltydog’s 4 week charts can help investors identify a fund that is starting to outperform, and their weekly reporting enables you to see when the top of the outperformance curve has been reached. If you combine a Saltydog style tool with a strategy that employs moving averages over a relatively short period to give you a feel for price trends you stand a chance of maximising any outperformance that Saltydog may identify. They will bring such outperforming funds into their model portfolios and will then advise you in their weekly emails as to the performance of the funds in the portfolios.Wealth warning!
Momentum Trading is not an investment philosophy supported by many traditional financial advisers (although more and more are giving it consideration), and is really ONLY for those who are prepared and interested enough to take an active and regular approach to managing their portfolios. This article is ABSOLUTELY NOT a suggestion or recommendation that you try such an approach. I include it for interest and the sake of completeness only. You should understand the risks involved and be completely happy about them before taking this approach to investing your pension pot.
This Money Week article from July 2015 on momentum investing features Saltydog and another momentum concept using passive funds.
A thisismoney.co.uk article from Feb 2014 on Saltydog shows how it has managed to avoid the drops in the market