The feature enables fund managers to run ‘aggregated portfolio momentum analysis’ and optimise strategies by limiting exposure to underperforming stocks and ETFs. Managers can measure a portfolio in terms of the overall momentum exposure, which can be combined with most investment strategies, said the company.
The methodology works via a A,B,C,D rating grade that includes ‘pluses’ and ‘minuses’. In this way it can measure the momentum exposure for whole portfolios, baskets of stocks and indices.
The resulting momentum profile is then calculated on all the components and the specific weightings and synthetized as a grade.
A rating of A, A-, or B+ is usually associated with a portfolio possessing strong exposure to bull trends. A reading of B or B- indicates that 25 to 33% of the holdings are in a bear trend, and an adjustment is advisable in order to effectively manage the risk of losses. Meanwhile, anything below B is a warning signal that 50% or more of the holdings are in a downward trend that could impact returns dramatically.
Trendrating CEO Rocco Pellegrinelli calls the ability to accurately measure exposure to the momentum factor a ‘major breakthrough’ in portfolio management.
“Our mission is to provide equity portfolio managers with the most accurate, relevant and actionable momentum analytics”, said Pellegrinelli. “The new release of our solution is another step in facilitating the adoption of momentum metrics at a time when the momentum factor is gaining traction with active as well as passive managers,” he added.