estimated reading time: 4 minutes

Twenty years ago, the new market crash wiped out my first stock market money and my ego. I swore off the stock market, but my pension certificate showed me that ducking out has an expiry date.

So the first attempts to start again followed. Here on Getquin, I have learned from positive critical voices from e.g. @DonkeyInvestor and @Epi that there is more to it than "just picking something". Since my last post 6 months ago, this was followed by extreme late-night brooding, Excel monsters, AI research, reading Kommer and countless "new agains".

I have tried to read up on modern optimization models such as Mean-Variance, Black-Litterman and Fama-French etc. and implement them in the best possible way.

The result was this portfolio!

As thoroughly tested as you can in a private garage, and coupled with the insight that we only have to leave the uncontrollable to chance.

And one thing first. I am convinced of this and will not change it.

I just want to share my thoughts and ideas about the direction with you. It's difficult to really explain every detail here, I'm sure I could do it better in a conversation, but that's not possible here. I can assure you that the selection and combination definitely makes sense - at least for me and the construct. Among other things, it was important to me to be able to control individual regions separately. I think I have achieved that.

Global (30%)

- SPDR MSCI All Country World, $SPYY (+0,39 %)

- L&G Global Equity UCITS ETF, $LGGG (+0,26 %)

- iShares Edge MSCI World Momentum, $IS3R (-0,46 %)

- Xtrackers MSCI World Value, $XDEV (+0,57 %)

- Invesco Global Active ESG Equity, $IQSA (+0,13 %)

- VanEck World Equal Weight Screened, $TSWE (+0,43 %)

- VanEck Morningstar Developed Markets Dividend Leaders, $TDIV (+0,05 %)

USA (31.5%)

- L&G US Equity, $LGUG (+0,61 %)

- iShares MSCI USA Mid-Cap Equal Weight, $IUSF (+1,8 %)

- JPMorgan BetaBuilders US Small Cap Equity, $BBCS (+0,1 %)

- SPDR MSCI USA Small Cap Value Weighted, $ZPRV (+2,85 %)

Europe (17.5%)

- HSBC EURO STOXX 50, $H50A (+0,4 %)

- L&G Europe ex-UK Quality Dividends Equal Weight, $LDEG (+0,4 %)

- SPDR MSCI Europe Small Cap Value Weighted, $ZPRX (+1,31 %)

Emerging markets (19%)

- iShares Edge MSCI Emerging Markets Value Factor, $5MVL (+0,7 %)

- UBS LFS MSCI Emerging Markets ETF, $EMMUSA (+0,71 %)

- L&G Emerging Markets Quality Dividends Equal Weight, $LDME (+0,34 %)

- SPDR MSCI Emerging Markets Small Cap, $SPYX (+0 %)

Japan (2%)

- L&G Japan Equity UCITS ETF, $LGJG (+0,8 %)

Ø TER = 0.25%

In summary, this gives the following breakdown

Regional breakdown

- USA (North America) ~ 48%

- Asia ~ 22%

- Europe ~ 22%

- UK ~ 3.6%

- Japan ~ 4.4%

Market capitalization

- Large Cap ~ 52%

- Mid Cap ~ 26%

- Small Cap ~ 22%

The portfolio deliberately allocates its capital to the regions and - where possible - to all capitalization classes. The world building blocks provide the global beta; value, momentum and quality satellites add factor premiums. In the USA, a complete large/mid/small stack provides a pronounced size bias, while Europe receives a value bias via quality and small value ETFs. The emerging layer combines large-cap value stocks, quality leaders and a small-cap module - a diversification anchor beyond the developed markets.

Due to the almost equal weighting of the 18 positions, the Herfindahl index of ETF weights falls to ~633; indirectly, the portfolio contains several thousand individual stocks. The weighted TER is ≈ 0.25 % p. a., spreads below 0.1 %. This means that, compared to a $GERD (+0,38 %) a favorable multifactor portfolio myself.

The factor tilts (value 42 %, size 35 %, quality/div ≈ 12 %, momentum ≈ 8 %) increase the expected volatility moderately to 18-20 % p.a.; however, historical data on small and value indices indicate 1-2 percentage points additional return over long horizons. Large caps remain present at around 52 %, mid caps at 26 % and small caps at 22 % support the size premium .

With my "multi-factor all-cap portfolio", I combine global market coverage with five proven premiums, without cost or concentration ballast. Of course, I will have to endure additional fluctuations, but I believe that I have created a robust source of returns over the long term.

I have tried to consider everything and leave nothing to chance, except the uncontrollable.

Anyone who has made it this far. Thanks for reading.

I'm looking forward to your feedback.

PS:

YES, I have Bitcoin😉 and also two themed ETFs. They just stay like that.

- ARK AI & Robotics ETF, $AAKI (+2,43 %)

- HanETF Future of Defense ETF, $ASWC (+0,14 %)

- ETC GROUP CORE BITCOIN, $BTC1 (+3,55 %)

---

no investment advice; DYOR

Thanks also to @VPT , @Mister_ultra , @Ph1l1pp , @ShrimpTheGimp , @MoneyISnotREAL , @Staatsmann and @Smudeo for commenting and providing approaches.

Dear community, I have recently and also previously explained from time to time why I find the MSCI World in particular stupid and why I don't enjoy investing in such an ETF. If you want to know the exact reasons for this, you can also read about it here: https://getqu.in/YgdvFh/

Anyway, I have now found the time to take a closer look at ETFs. And I can tell you one thing: Soprano buys the MSCI World before GTA 6. To be precise, it has already happened. What sounds "normal" to some people is definitely not to me. Anyone who has read the old post and knows my opinion on the MSCI World and knows that I only hold 100k in individual stocks - no passive investing, no core satellites - will understand that it may be interesting for some to read the background to my change of heart.

One of the main reasons for my world aversion is that I don't like the weighting of bad assets by market capitalization at all. In my Sturm & Drang days, I once tried to get around this with a self-built portfolio with GDP weighting. In other words, you buy one ETF each for the USA, Euro Stoxx, Switzerland, Japan, UK, emerging markets, etc. and then try to weight them yourself based on their actual economic strength. What sounds like an incredible clusterfuck is actually one. I abandoned this idea after just a few months because, in my view, it combines the worst of active investment and passive investment. Since then, I have only had around 2% of my assets in an India ETF (which is currently under review) and 2% in an active fund and have invested the rest in hand-picked individual stocks.

But enough beating around the bush. I'll tell you which ETF I bought and, more importantly, what I was thinking. It is the $IS3R (-0,46 %) (MSCI World Momentum Factor ETF). To explain it briefly: the ETF does not simply invest in all the companies in the MSCI World and weight them according to the question of how big the company is, but prefers to buy the shares that have performed well in the past.

I see three very specific advantages here compared to conventional index investments.

Firstly the main advantage of an ETF is that you can trust the ETF provider to react faster and better to trends than you would yourself. I keep hearing that the 70% USA in the world is not a problem at all, as the ETF would simply "reallocate" everything. If rebalancing is so great, then it's best to trade trends in a fund that was specifically designed for this purpose.

The second advantagel is that momentum (after value and before quality) is one of the factors that can achieve a statistically significant outperformance compared to the broad market. This should not be underestimated either.

The third and final advantage for me personally is that it covers a blind spot in my portfolio. I myself invest mainly in shares that are very profitable but are also growing well. This corresponds to the factors "quality" and "growth". A typical example of this would be Microsoft. And of course I also try to get such companies as cheaply as possible ("value").

However, what I regularly don't do is get into shares that already seem expensive but continue to rise massively. That's why I also miss out on opportunities like $AVGO (+0,59 %) and $COST (-2,24 %) - is simply because I am relatively cautious and don't use/understand charting techniques. Such stocks typically end up in the portfolios of colleagues like @Dividenden_Monteur while they starve on my watchlist. A momentum ETF gives me the chance to be on board here, and far more so than conventional world investors.

Of course, I should not completely ignore the potential disadvantage that such an ETF is fundamentally more susceptible to fluctuations and therefore more "dangerous" than the index.

For me, this is a test phase for now. I hope I can remain loyal to the investment. But maybe I'll go crazy again and switch back to pure US investments, either with a normal S&P or something more extreme with smart beta factors and leverage.

May the holy Amumbo be with you!

Amen.

Dear Community,

I have finally managed to convince my wife of the benefits of the stock market.

She will start with 30k and has decided on the following ETFs, which she will save a total of 3k over 10 months. After that, she would like to invest at the same rate with a fixed monthly savings rate of around €500. She does not want to start directly with the full 30k.

The breakdown is as follows:

$JGOR (+1,48 %) 20%

$ETLZ 10%

$ A40C74 20%

$IS3R (-0,46 %) 50%

We are aware that the USA represents a cluster risk...

Thank you for your feedback.

Smart Beta ETF

Part 4 - Momentum ETF - Follow the Trend!

Disclaimer: No investment advice or recommendation, this article is for information purposes only. Before you decide on an ETF, take a closer look at it in terms of positions, sampling, regions, etc. I can't describe everything here as it would go beyond the scope of this article

Part 1 (Definition, Categories & Z-Score and Quality Factor): https://getqu.in/RCSY4a/

Part 2 (Value ETF): https://getqu.in/Nfnhqb/

Part 3 (Low Volatility ETF): https://getqu.in/Ub7KpG/

What are Momentum ETF

Momentum ETFs are fundamentally based on the premise that trends generally continue and that a risk-adjusted excess return can be achieved by recognizing them at an early stage. To implement this strategy, the most recent price developments (6 / 12 months) are included in the weighting of the individual stocks in the index. This is usually based on a parent index, e.g. there are momentum ETFs on the MSCI World, Europe or USA. This system means that momentum ETFs contain a higher concentration of certain companies and are therefore less diversified than conventional indices. Thus the$IS3R (-0,46 %) for example, contains only 350 shares, whereas the MSCI World holds 1,500 shares.

Momentum a double-edged sword

Anyone thinking, follow the trend? Of course, I'm right there with you! The following paragraph is dedicated to the fundamental duration of trends.

General stock market trends

As the adjustment of the Momentum ETF only takes place after 6/12 months, one could be of the opinion that this is too late for the ever faster moving world around us. The stock market prices in changes in the micro and macro climate immediately and crises are only short-lived, as, for example, a high interest rate policy would not be sustainable in the long term given the high debt situation of individual countries. This contrasts with an analysis by Vanguard, according to which the length of bear phases has hardly changed:

The fundamental bull and bear phases have thus hardly changed - in terms of their length - or the bull phases have even tended to become longer, which would make early momentum advantageous. But what does it look like at the micro level?

Sector trends

As there is little empirical data in the sector area, the analysis here is based on a few examples and therefore more anecdotal evidence. Due to increasing digitalization and global logistics chains, there is a risk that trends are priced in so quickly that the momentum ETF with its 6/12 month lag cannot react to them fast enough. The example of how long it took companies to reach one million users is often used here:

With rapid scaling, it can thus happen that the company's share price rises sharply and the momentum ETF then buys into the position at very high prices. However, as the stock market has already priced in future growth due to the rapid growth, the momentum ETF may be sold again if the share price stagnates.

This can be clearly seen in the example of NVIDIA in the iShares Edge MSCI World Momentum Factor UCITS ETF (Acc) ($IS3R (-0,46 %)):

This is currently the largest position in the portfolio at > 5% (as there is also a lot of momentum), but what has it looked like over the years?

If you put the price of NVIDIA against it...

... and take a detailed look at the purchases and sales of the ETF in 2021/2022:

It is noticeable that, due to the ETF's algorithm, NVIDIA's rise in H2 2021 was recognized as a trend and thus high positions were built up. However, as the trend then turned negative, all NVIDIA shares were sold again within a year.

This shows that the strength of momentum can also be its weakness at the same time, because if a trend does not stabilize directly but there is a setback in prices, it can happen that the momentum ETF - instead of becoming cheaper - sells its holdings and then (6 to 12 months after the price has risen again) may enter again at a higher price.

It can also happen that "the wrong horse" is backed in times of crisis. Since - as the chart above from Vanguard shows - bear markets only last 1 year on average and the rebalancing of momentum ETFs only takes place every 6/12 months, a misallocation can occur. This happens, for example, when the rebalancing takes place at the end of a crisis and companies that were relatively weaker (usually interest rate-sensitive growth stocks) are sold and companies that came through the crisis relatively strong (utilities, food,...) are bought. If this happens at the end of the crisis, in the subsequent bull market you have exactly the stocks in your portfolio that were strong during the crisis but tend to be weak in the bull market.

It is therefore a case of market timing, where you can be lucky or unlucky. The following chart shows momentum versus the world during the coronavirus crisis. Here, momentum has outperformed the world, which suggests that the crisis occurred during a suitable rebalancing period:

However, the Momentum Premium tends to underperform in extreme situations. The crashes in the early 2000s (tech bubble) and 2009 (Lehman) ensured that the momentum factor premium did not exceed the 1999 high in 2016. (Source: https://www.institutional-money.com/magazin/theorie-praxis/artikel/ermattendes-momentum-597)

Can I achieve an excess return by sitting in front of ETF rebalancing?

In theory yes, but in practice this will be difficult to implement. The momentum ETFs are not yet so large that this would result in large movements, and in addition, according to my research, the purchases can be spread over a period of time. In addition, there may be other smart beta ETFs that sell the same stocks according to a different logic and, last but not least, the algorithm would have to be sufficiently well replicated and the rebalancing data would have to be known.

Which are the best-known momentum ETFs?

👉ETFs:

-$IS3R (-0,46 %) (World | TER 0.25 % | TD n.a. | 2.3 bn invested | 3 yr underperf. vs. world - 5,35 %, over 5 years outperf. + 4 %, 10 yrs outperf. + 62 %)

-$IUMO (-0,2 %) (USA | TER 0.20 % | TD 0.03 $ | 0.5 bn invested | 3 yr underperf. vs. S&P 500 - 16,2 %, over 5 years underperf. -24 % )

-$IEFM (-0,08 %) (Europe | TER 0.25 % | TD n.a. | 0.3 bn Investvl. | 3Y Underpfer. vs. Eurostoxx 600 - 0,6 %, over 5 yrs. outperf. + 17 %).

💡 Index methodology:

The ETF is based on a "parent index" such as the MSCI World.

Variables for Momentum ETF:

• 6-month price performance
• 12-month price performance

Momentum score calculation:

• Combination of 6-month and 12-month price performance
• Adjustment for local risk
• Risk-adjusted momentum values = excess return / annualized volatility

Stock selection:

• Stocks are selected based on their momentum score
• A fixed number of stocks with the highest momentum scores are included in the index

Weighting:

• Selected stocks are weighted by momentum score and market capitalization
• Maximum weightings are limited to avoid concentration risks

Rebalancing:

• Semi-annual rebalancing

Conclusion:

What remains? As described at the beginning, momentum ETFs are a double-edged sword in my view, as they can potentially generate excess returns - in the case of longer-lasting trends - and longer bull markets, but they come with challenges:

• Fluctuating performance in different market phases
• Possible timing problems with semi-annual rebalancing
• Difficulties with fast sector trends

Momentum ETFs are suitable for investors who are prepared to accept higher volatility for potential excess returns. I would therefore only use them as an add-on, e.g. as part of a core-satellite strategy.

#smartbeta

#etfs

#value

#valueinvesting

#portfolio

#stockanalysis

Social media:

You can find links to my profiles on Instagram in my profile - feel free to drop by.

Trying something new and relying on momentum. Sounds exciting. What are your experiences with it?

Your opinion on $LOCK (+1,08 %)
?

Actually I wanted to $LOCK (+1,08 %) as a long-term position with a 1% weighting in the portfolio, but I'm having more and more doubts as to whether that would be a sensible decision...

Here are the points that are currently giving me a bit of a headache.

1) The good performers of this ETF would also be in the $IS3R (-0,46 %) which I want to hold 25% in my portfolio in the long term.

2) Just because you think a sector will play a major role in the future doesn't mean that the prices of the stocks in this sector will all rise. Best example: $INRG (+2,03 %) ! I only added this ETF to my portfolio because I think the sector is exciting for the future.

3) In addition, I'm already heavily invested in tech in general, which is why I'm considering whether it wouldn't be good for the diversification of my portfolio if I were to replace this position with, for example, an ETF. $RSG (-1,82 %) , $PLD (+2,56 %) or $DNP (-6,18 %) for example.

I'll have a think about this this week and then see what I do... I've put the savings plan on hold for the time being.

I would be very interested to know what you $LOCK (+1,08 %) what you think.

Could you imagine this ETF as a long-term position with a 1% weighting?

After being instructed by @DonkeyInvestor how to present your portfolio on getquin in a sensible way in order to receive sensible feedback, I am hereby starting an attempt to present my model portfolio, which I would like to work towards in the long term.

I already posted my current portfolio the other day, the model portfolio presented here is a kind of wishful thinking of what my portfolio should/could look like in the long term.

My investment horizon and my goals:

I am 22 years old and studying economics, so I still have many years to go before my state pension. However, my goal is to retire a little earlier, i.e. when I can live off my portfolio without reducing its value every year.

My investment strategy:

I have opted for a buy & hold strategy with two ETFs as the fixed core of my portfolio, a few individual stocks that I am convinced of in the long term and a small crypto mix.

The ETFs:

ETF no. 1: $IS3R (-0,46 %)

ETF No. 2: $216361 (+0,93 %)

My single stock/thematic ETFs:

45 individual positions with 1% weighting each, see sample portfolio.

My cryptos:

Approx. 5 to max. 10% crypto weighting.

Of which 50% $BTC (+0,12 %) , 25% $ETH (-0,91 %) , 25% $SOL (+2,58 %)

Why this investment strategy?

I do not yet have sufficient experience with economic indicators and find it difficult to assess how an interesting share is valued at the current time, which is one of the reasons why I have opted for a buy & hold strategy with the two ETFs as the fixed core of my portfolio and a few individual shares that I am convinced of in the long term.

About the ETFs:

I would like to weight both ETFs at 25% each and therefore already invest in both regularly.

ETF no. 1: MSCI World Momentum ETF

This ETF differs from the normal MSCI World in that it overweights stocks with current price momentum, which has proven to be a superior strategy in recent years. With this ETF, I always have the winners of current developments in this rapidly changing world in my portfolio over the long term.

ETF no. 2: Ossiam Shiller ETF

For me, this ETF offers a nice complement to the Momentum Factor ETF, as it invests somewhat more anti-cyclically. The ETF selects the five sectors with the lowest relative CAPE (Cyclically Adjusted Price Earnings) from the S&P 500. The relative CAPE coefficient assesses the relative costliness of a sector based on its current and long-term historical prices and earnings. The method then calculates the sector with the lowest price momentum over a 12-month period, i.e. the sector with the worst performance in the period under review. Each of the remaining four sectors is given the same weighting (25%) and the components of the investment universe are rebalanced on a monthly basis. In short: This is a rather anti-cyclical way of investing, but by leaving out the worst performing sector you are also not falling into the trap.

About my individual stocks/thematic ETFs:

As already mentioned, I am not yet experienced in judging whether a share is currently fairly valued or not. I also don't want to have any companies in my portfolio where I have to research every two weeks whether the business model will still be needed in the near future or not. However, I don't want to do without individual shares altogether either, as a pure ETF portfolio would simply not give me any pleasure. So my solution is as follows:

I take buy&hold-compliant individual shares into the portfolio, where I am simply convinced of the business model in the long term.

I would take these 45 individual positions (including the 3 thematic ETFs) and weight them all at around 1% (excluding the weighting of individual companies in the ETFs). If you buy shares to hold them for more than 20 years, the current valuation plays a somewhat less important role. Even stronger corrections are not the end of the world here, but rather offer good opportunities for additional purchases.

The following shares are in my current portfolio but not in the model portfolio:

• Abbvie $ABBV (-0,99 %)
  
• Anglo American $AAUKF
  
• Celsius Holdings $CELH
  
• Edwards Lifesciences
• Morgan Stanley $MS (+1,61 %) (replaced by S&P Global in the model portfolio)
• Novo Nordisc $NOVO B (+2,41 %)
  
• Nvidia $NVDA (+0,78 %)
  
• ParTec AG $JY0 (-6,31 %)
  
• Redcare Pharmacy $RDC (+0,48 %)
  
• Shopify $SHOP (+2,85 %)
  
• Hershey $HSY (-0,53 %)
  
• Walt Disney $DIS (+1,31 %)
  

Of course I won't sell all of these stocks immediately, I just think that they are rather unsuitable for my long-term strategy, even though I still see good potential for some of them in the near future...

I simply blindly added a few of them to my portfolio at the time without having really looked into the respective company in detail. I will think again (also taking your comments into account) about whether I want to keep these shares or not and when I might sell them.

-. A few of the 45 positions in the sample portfolio are certainly not classic buy & hold companies, for example Tesla, BYD, Intuitive Surgical, MercadoLibre etc., but they are companies that I am personally convinced of in the long term and that I assume will perform very well in the long term.

-. I am aware that the GAFAM stocks that I have in my portfolio as individual positions are also heavily weighted in the ETFs, which is intentional, as I find these companies so enormously strong that I have no problem with them having a total weighting of around 3-4% through individual positions and ETFs.

-. The high US weighting has bothered me for a long time, but I'm coming to terms with it more and more. Many of the companies in the model portfolio make their sales worldwide anyway.

About my cryptos:

I don't want to give cryptos a high weighting, as there is a very high risk involved. I have set myself a 5% weighting. If the weighting exceeds 10%, I halve it again and put the profits into equities. However, if the weighting falls below 5%, I'm happy to buy more, as cryptos naturally also offer great performance opportunities and the high volatility means there are always opportunities to buy.

My outlook:

I will continue to save in the two ETFs and make sure that I add 45 individual positions to my portfolio in the long term, where I am relaxed and also expect a good performance. As things stand, these are the 45 positions from the model portfolio.

Which I am consciously doing without:

-. I am not a fan of dividends. Even if the psychological advantages should not be underestimated, there are simply many reasons why a focus on dividends does not make much sense as a young investor. I want nice price gains that are not held back by high dividends. That's why you won't find any tobacco or oil stocks in my portfolio.

In the withdrawal phase, I will still receive reasonable dividends, as I have some dividend growth stocks in my portfolio, which I think will be noticeable after a few years. I would also like to finance my pension simply by selling some of the stocks.

-. I also deliberately avoid stabilizing factors such as gold. It's unnecessary with an investment horizon as long as mine and simply costs returns in the long term.

I hope the presentation of my strategy is clearly formulated, I would be extremely pleased to receive factual and detailed feedback from you and I will also take criticism to heart.

Many thanks in advance! 🙏🏼