An ETF that buys win­ners

Finweek English Edition - - MARKETPLACE - *The writer owns NFEMOM. By Simon Brown

NFEMOM is the Absa New Funds Mo­men­tum ex­change-traded fund (ETF) that selects the stocks within the ETF us­ing a sim­ple mo­men­tum method­ol­ogy. In other words, buy­ing the win­ners us­ing pure price move­ment. When it was ini­tially launched, the ETF used a three-month look-back pe­riod that I con­sid­ered too short, but late last year they changed the method­ol­ogy to now use a 12-month look-back pe­riod, which is ex­actly what I use.

I started run­ning a self-man­aged mo­men­tum ETF back in 2007 us­ing the Top40, be­fore ex­pand­ing it to also in­clude the Mid­Cap In­dex at the be­gin­ning of 2013. I re­struc­tured it last year to avoid con­cen­tra­tion risk, ex­pand­ing the port­fo­lio to in­clude 15 stocks.

The sys­tem has worked well, with the oc­ca­sional year of un­der­per­for­mance but beat­ing the mar­ket hand­somely over any three-year pe­riod. How­ever, tax was a drag on prof­its and 15 stocks added sig­nif­i­cantly to my port­fo­lio hold­ing, which is cur­rently only 13 stocks. So, I de­cided to keep things sim­ple and switch my mo­men­tum port­fo­lio into this mo­men­tum ETF.

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