Substitute imtm for Vea

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invest2bfree
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Joined: Sun Jan 12, 2020 9:44 am

Substitute imtm for Vea

Post by invest2bfree »

Is it possible for substituting imtm for vea?

Are they of the same risk profile?

They are from developed international but ishares has the momentum factor on these.

My reason to pick Imtm over vea is that the entire developed markets are filled with mega cap low growth Bank, Energy and Telecom Stocks which have gone no where.

Case in point Tef, San, hsbc and RDS.

These Developed markets have low demography and deflation.
RetiredCSProf
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Re: Substitute imtm for Vea

Post by RetiredCSProf »

Consider annotating your subject with the fund names.

ISHARES TR MSCI INTL MOMENTUM FACTOR ETF (IMTM) is considered more risky than VEA, and thus has the potential for more return and more volatility. Depending on your risk profile and / or willingness for complexity, you may want to hold both funds.

I recently shifted from an investment in a MF holding large-cap foreign blend into IMTM. Momentum ETFs are currently tilted toward growth because growth has out-performed value in recent years. Within growth, IMTM is tilted toward the leading sectors: Healthcare and Tech.

For example, as of 30 Sept 2020, IMTM holds 27% in Health Care (of which 16.5% is in Pharma), 18% in IT, 11% in Industrials, 5% in Financials while VEA holds 11% in Health Care, 10% in IT, 14.5% in Industrials, 16% in Financials
Northern Flicker
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Re: Substitute imtm for Vea

Post by Northern Flicker »

imtm will likely underperform in a period where value outperforms growth.
Risk is not a guarantor of return.
Tingting1013
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Re: Substitute imtm for Vea

Post by Tingting1013 »

Northern Flicker wrote: Sat Oct 17, 2020 10:35 pm imtm will likely underperform in a period where value outperforms growth.
Why? Wouldn’t IMTM just switch out all of its growth stocks for value stocks?

It’s a momentum fund, it’s supposed to hold whatever has gone up recently, whether that’s growth or value.
000
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Re: Substitute imtm for Vea

Post by 000 »

You've got to ask yourself one question: 'Do I feel lucky?' Well, do ya?
dru808
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Location: mid pac

Re: Substitute imtm for Vea

Post by dru808 »

Sure, I chose vigi to substitute vxus.
60% SCHK | 25% VIGI | 15% ILTB
Tingting1013
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Re: Substitute imtm for Vea

Post by Tingting1013 »

000 wrote: Sat Oct 17, 2020 11:10 pm You've got to ask yourself one question: 'Do I feel lucky?' Well, do ya?
If by “lucky” you mean “subscribe to the academic research that shows a sustained momentum premium has existed for the past two centuries across multiple asset classes” then yes, I feel quite lucky indeed.

http://www.investmentpod.com/assets/upl ... 607730.pdf
000
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Re: Substitute imtm for Vea

Post by 000 »

Tingting1013 wrote: Sat Oct 17, 2020 11:16 pm
000 wrote: Sat Oct 17, 2020 11:10 pm You've got to ask yourself one question: 'Do I feel lucky?' Well, do ya?
If by “lucky” you mean “subscribe to the academic research that shows a sustained momentum premium has existed for the past two centuries across multiple asset classes” then yes, I feel quite lucky indeed.

http://www.investmentpod.com/assets/upl ... 607730.pdf
Then I have just one thing to say to you....

Good luck
Northern Flicker
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Re: Substitute imtm for Vea

Post by Northern Flicker »

Tingting1013 wrote: Sat Oct 17, 2020 11:05 pm
Northern Flicker wrote: Sat Oct 17, 2020 10:35 pm imtm will likely underperform in a period where value outperforms growth.
Why? Wouldn’t IMTM just switch out all of its growth stocks for value stocks?

It’s a momentum fund, it’s supposed to hold whatever has gone up recently, whether that’s growth or value.
By the time a momentum fund acquires a stock that has appreciated, it generally won't be a value stock any more.
Risk is not a guarantor of return.
dru808
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Joined: Sat Oct 15, 2011 2:42 pm
Location: mid pac

Re: Substitute imtm for Vea

Post by dru808 »

Northern Flicker wrote: Sun Oct 18, 2020 2:22 pm
Tingting1013 wrote: Sat Oct 17, 2020 11:05 pm
Northern Flicker wrote: Sat Oct 17, 2020 10:35 pm imtm will likely underperform in a period where value outperforms growth.
Why? Wouldn’t IMTM just switch out all of its growth stocks for value stocks?

It’s a momentum fund, it’s supposed to hold whatever has gone up recently, whether that’s growth or value.
By the time a momentum fund acquires a stock that has appreciated, it generally won't be a value stock any more.
How does this work with value funds, wouldn’t the same thing occur?
60% SCHK | 25% VIGI | 15% ILTB
Tingting1013
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Re: Substitute imtm for Vea

Post by Tingting1013 »

Northern Flicker wrote: Sun Oct 18, 2020 2:22 pm
Tingting1013 wrote: Sat Oct 17, 2020 11:05 pm
Northern Flicker wrote: Sat Oct 17, 2020 10:35 pm imtm will likely underperform in a period where value outperforms growth.
Why? Wouldn’t IMTM just switch out all of its growth stocks for value stocks?

It’s a momentum fund, it’s supposed to hold whatever has gone up recently, whether that’s growth or value.
By the time a momentum fund acquires a stock that has appreciated, it generally won't be a value stock any more.
By this logic value funds would by definition always underperform the broader market.
Northern Flicker
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Re: Substitute imtm for Vea

Post by Northern Flicker »

A value fund would sell a stock that has appreciated out of the value measure, and acquire stocks that become value stocks. In a period of value overperforming it is not generally the same stocks overperforming the whole time. The value portfolio is adjusted to retain its value exposure as the value measure of different stocks change over time.

It is a known issue that it is difficult to hold a portfolio that is exposed to both value and momentum because momentum and growth generally have a large overlap. And if you hold both a value fund and momentum fund you could end up paying the transaction cost of selling a stock in one fund and buying it in the other, a round trip cost just to keep holding the stock.

My understanding is that DFA uses momentum screens for their value funds. We would not be able to drill down into the details of their methodology without access to proprietary information, so it is hard to describe it definitively, but my understanding is that they use momentum screens to delay acquiring value stocks while they have strong negative momentum, to avoid trying to grab falling knives, and they delay selling stocks with strong positive momentum for a bit to try to capture as much of the appreciation of a value stock turnaround as feasible without undermining the value exposure of the portfolio.
Last edited by Northern Flicker on Mon Oct 19, 2020 2:49 am, edited 1 time in total.
Risk is not a guarantor of return.
Northern Flicker
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Joined: Fri Apr 10, 2015 12:29 am

Re: Substitute imtm for Vea

Post by Northern Flicker »

Tingting1013 wrote: Sun Oct 18, 2020 2:54 pm
Northern Flicker wrote: Sun Oct 18, 2020 2:22 pm
Tingting1013 wrote: Sat Oct 17, 2020 11:05 pm
Northern Flicker wrote: Sat Oct 17, 2020 10:35 pm imtm will likely underperform in a period where value outperforms growth.
Why? Wouldn’t IMTM just switch out all of its growth stocks for value stocks?

It’s a momentum fund, it’s supposed to hold whatever has gone up recently, whether that’s growth or value.
By the time a momentum fund acquires a stock that has appreciated, it generally won't be a value stock any more.
By this logic value funds would by definition always underperform the broader market.
That is not correct. A stock has to have overperformed the market for a period of time before it satisfies a momentum measure and is picked up by a momentum fund. When a value stock turns around, the sharpest appreciation is likely to be early in the cycle. By design, momentum always misses a period of overperformance of a stock that qualifies for momentum.
Risk is not a guarantor of return.
dru808
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Location: mid pac

Re: Substitute imtm for Vea

Post by dru808 »

Northern Flicker wrote: Sun Oct 18, 2020 3:02 pm
Tingting1013 wrote: Sun Oct 18, 2020 2:54 pm
Northern Flicker wrote: Sun Oct 18, 2020 2:22 pm
Tingting1013 wrote: Sat Oct 17, 2020 11:05 pm
Northern Flicker wrote: Sat Oct 17, 2020 10:35 pm imtm will likely underperform in a period where value outperforms growth.
Why? Wouldn’t IMTM just switch out all of its growth stocks for value stocks?

It’s a momentum fund, it’s supposed to hold whatever has gone up recently, whether that’s growth or value.
By the time a momentum fund acquires a stock that has appreciated, it generally won't be a value stock any more.
By this logic value funds would by definition always underperform the broader market.
That is not correct. A stock has to have overperformed the market for a period of time before it satisfies a momentum measure and is picked up by a momentum fund. When a value stock turns around, the sharpest appreciation is likely to be early in the cycle. By design, momentum always misses a period of overperformance of a stock that qualifies for momentum.

When does a value fund shed a stock? Let’s assume Ex. Tesla was a value stock 5 years ago, it went on a meteoric rise and turned into a growth stock. When would vtv have shed Tesla?
60% SCHK | 25% VIGI | 15% ILTB
Northern Flicker
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Joined: Fri Apr 10, 2015 12:29 am

Re: Substitute imtm for Vea

Post by Northern Flicker »

Stating the obvious, a value fund would shed a stock when its periodic reconstitution process no longer qualified it for inclusion. You have to look at the fund's value measures and portfolio management policies to understand it. Funds that track published value indices are more transparent, but in certain cases, have also been more susceptible to front-running of index changes.

In this regression of (low reliability of) 40% VTV, 60% MTUM you can see that the value exposure virtually was cancelled out, but some momentum exposure was retained.
Risk is not a guarantor of return.
Northern Flicker
Posts: 6517
Joined: Fri Apr 10, 2015 12:29 am

Re: Substitute imtm for Vea

Post by Northern Flicker »

The fund in question, imtm, has had mildly negative loadings on value, size, and quality, with moderately high loadings on time series monentum:

https://www.portfoliovisualizer.com/fac ... sion=false

So they have done a pretty good job so far of avoiding negative loading on other factors. I would be put off by the fact that it trades at a 0.34% premium. I would be leery of holding this as my only int'l equity fund, but I am also fairly skeptical of monentum as a strategy in general as a personal bias.
Risk is not a guarantor of return.
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