The Momentum Factor Still Has Legs. But Stay Selective February 11, 2021
The momentum factor remains compelling, but investors should be selective when embracing it. One way to do so is through the
MTUM seeks to track the investment results of the MSCI USA Momentum Index, which consists of stocks exhibiting relatively higher momentum characteristics than the traditional market capitalization-weighted parent index, the MSCI USA Index, which includes U.S. large- and mid-capitalization stocks.
Momentum tends to be negatively correlated to factors like size and value since momentum identifies securities that are trending upwards. These stocks tend to reflect successful companies with positive trends that become bigger and bigger. Consequently, investors can also enjoy the diversification benefits of adding momentum strategies to small cap and value-heavy portfolios.
With Investors Piling Into Risky Debt, Yields Are Dropping Even Further February 10, 2021
Rates were at bottom-of-the-barrel lows during much of 2020, causing a voracious appetite for yield. This caused fixed income investors to pile into risky debt, and is now dropping yields further.
In the current market landscape, Treasury yields are starting to head higher. This, in turn, could cause a flight from riskier debt and back into more safe haven government debt.
In the meantime, the average yield on risky debt is starting to head lower.
“The average yield on U.S. junk bonds dropped below 4% for the first time ever as investors seeking a haven from ultra-low interest rates keep piling into an asset class historically known for its high yields,” a Bloomberg article noted. “The measure for the Bloomberg Barclays U.S. Corporate High-Yield index dipped to 3.96% on Monday evening, making it six straight sessions of declines.”