The Cambria International Momentum ETF (BATS:GMOM) is an actively managed fund that includes a quantitative trend-following technique. The thought right here is predicated on tutorial analysis going again a long time suggesting profitable property from earlier durations, on common, proceed to outperform going ahead. GMOM takes a cross-asset class strategy by incorporating ETFs masking U.S. and international equities, fastened earnings, currencies, and commodities exhibiting “momentum”. Favorably, GMOM has been capable of ship a optimistic return this 12 months to date in distinction to the broader market that has been in a deep selloff.
The technique’s tilt towards vitality and pure assets has contributed to its outperformance highlighting the fund’s enchantment. That being mentioned, the query turns into how the fund will carry out within the subsequent stage of the market cycle. Specifically, a few of the fund’s present high holdings have corrected decrease from current highs and there’s some ambiguity within the rebalancing course of. GMOM has had a very good 12 months and might work as a portfolio diversifier however there are causes to count on greater volatility going ahead.
What’s the GMOM ETF?
In response to Cambria International, GMOM selects from a universe of roughly 50 exchange-traded funds that every seize the high-level traits and themes from key market segments. From there, the fund invests within the high third greatest performing funds primarily based on measures of brief and long-term trailing momentum via an equal-weighted methodology.
What’s attention-grabbing right here with the actively-managed strategy is that the technique has some flexibility to make common changes. Whereas there’s a scheduled month-to-month rebalancing that replaces an underlying holding that falls out of the highest half of the momentum rating, GMOM may also transfer out of a place and into money as a danger administration software.
Administration explains that in such a state of affairs the place no property are in an uptrend, GMOM might theoretically be invested as much as 100% in money and bond ETF. Going again to a earlier level, it is unclear precisely what ranges of a correction warrant the lack of the momentum classification.
Having a look on the present portfolio of 15 holdings, GMOM makes use of its “sister fund”, the Cambria Worth and Momentum ETF (VAMO), which is predicated on simply U.S. shares, as its high holding with a 13% weighting to symbolize publicity to the U.S. fairness market. Notably, VAMO has additionally been a winner this 12 months, up about 5% which considers its underlying publicity to the outperforming sectors.
Down the road, vitality and commodity-specific ETFs are effectively represented together with the iShares International Vitality ETF (IXC) at 10% of the fund, adopted by the FlexShares Morningstar International Upstream Pure Sources Index Fund (GUNR) at 8%. There may be additionally the Invesco DB Vitality ETF (DBE) which has publicity to a basket of vitality futures. Different top-10 holdings embrace the iShares International Utilities ETF (JXI), and iShares International Infrastructure ETF (IGF) which collectively have been a comparatively defensive phase in 2022.
Upwards of 60% of GMOM is positioned in funds associated to pure assets which is smart contemplating that is the world of the market that has benefited from trending high-level macro the themes like file inflation, provide chain disruptions, and geopolitical uncertainties.
In comparison with a 23% decline within the S&P 500 (SPY) 12 months so far, GMOM is clinging to a 2% return benefiting from some distinctive momentum winners just like the DBE ETF up 66% monitoring the worth of oil and gasoline futures. The iShares International Vitality ETF has additionally contributed to the outperformance with a 26% acquire though we be aware the broader vitality sector has confronted greater volatility in current weeks, effectively off its highs.
The opposite robust level right here is that GMOM has been capable of outperform another comparable “momentum” technique ETFs. With a 3.5% return over the previous 12 months, GMOM is thrashing out the iShares MSCI USA Momentum Issue ETF (MTUM) down by 12%, the iShares MSCI Worldwide Momentum Issue ETF (IMTM) down 21% specializing in international shares, and the Alpha Architect Worldwide Quantitative Momentum ETF (IMOM) down 28% over the interval.
The spreads right here mirror variations within the underlying quantitative technique with GMOM getting an edge with its actively managed strategy. Be aware that MTUM, IMTM, and IMOM solely make investments throughout equities whereas GMOM is exclusive with a cross-asset strategy via ETF holdings.
So what we’ve right here is that whereas 2022 has been good to GMOM, it would not inform the entire story. Over the previous 5-years, the fund has returned a cumulative 37% on a complete return foundation which is above the 20% acquire from IMTM, however not alpha-generating in comparison with the 65% return within the S&P 500 and even the 55% return from MTUM, the most important ETF on this class with $10 billion in AUM.
Cambria International’s advertising materials with information via the final quarter finish confirms that it has lagged its benchmark which is the “S&P Balanced Fairness & Bond Index” by way of annualized returns since inception.
It is price mentioning GMOM distributes a quarterly dividend primarily based on the underlying earnings. The present yield of 4.35% has climbed from a low close to 1% in 2021. This shift displays the positions within the vitality and supplies sectors that usually distribute excessive payouts in distinction to the momentum winners of 2021 when the fund was extra concentrated in growth-type sectors. Recognizing the excessive turnover of the technique, it is laborious to estimate what the “ahead” yield on the fund is however shareholders can count on distributions to proceed.
GMOM Worth Forecast
The most effective-case state of affairs for GMOM proper now primarily based on its present portfolio holdings is that vitality and supplies sector shares proceed to rally greater. This can be a state of affairs that has so much going for it contemplating the headlines of tight oil and gasoline provides nonetheless reeling from pandemic-era manufacturing disruptions on high of the Russia-Ukraine conflict developments of this 12 months. Then again, we spotlight what has been some new volatility with the vitality sector promoting off in current weeks primarily based on a priority that slower international financial development might find yourself pressuring costs on the demand facet.
From a excessive on June ninth, GMOM is down roughly 9% over the interval dragged decrease by a 20% drop within the iShares International Vitality ETF and the same decline in different high fund holdings. We convey this up as a result of it is unclear how the actively-managed technique is coping with these positions primarily based on its flexibility to maneuver into money. Once more, the fund has an outlined month-to-month rebalancing course of however there’s a chance that the proprietary methodology now not considers a few of these funds as “momentum” primarily based on these newest strikes.
The result’s that traders are left at midnight relating to how GMOM will seem like subsequent week or this time subsequent month. This level highlights a broader problem with the momentum strategy in that it really works greatest in a trending market. Excessive volatility seen in all asset lessons over the previous few weeks is not conducive to optimistic returns.
We get right into a state of affairs the place GMOM strikes extra into money and might be left flat-footed as different areas of the market flip greater. Sooner or later, lagging sectors like development and expertise names will discover a backside and reverse greater. We’re not saying that is going to occur at present or subsequent week, however finally, GMOM will discover itself on the improper facet of the commerce and have to play catchup.
We charge GMOM as a maintain reflecting an in any other case impartial view. It crossed our radar primarily based on the optimistic year-to-date return however we’ll skip this one on the present degree. Taking a deep dive, it is a blended bag when trying on the long-term returns and efficiency metrics. Any investor holding the fund over the previous 12 months can have loved at the very least some preservation of capital in comparison with a broad inventory market index. Nonetheless, the technique would not seem to generate sustained extra returns.