Low Momentum Anomaly Opportunity and Update

Paper Performance Update: July and August Saw an Extraordinary Reversal in Performance
Is Low Momentum Still the Opportunity it was Two Long Months Ago?
Conclusion: Low Momentum Firms Still May Offer Tremendous Opportunity
Exhibits: Low and High Momentum Firms in Long and Short Portfolio

Paper Performance Update: July and August Saw an Extraordinary Reversal in Performance

In the July 2016 whitepaper Pain is the Parent of All Progress, we showed that FCF/EV spreads between low and high momentum firms had rarely been wider. In fact, the spreads at the time of publication had only been wider at the peak of the internet bubble, the 2008 crash, the peak of the low quality rally post that crash and finally, the low quality rally caused by Draghi’s “Whatever it Takes” initiative in 2012. The spread was approaching a two standard deviation event that can be seen in Figure 1 below.

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As a reminder for our Financial Advisors: our models are available on a continuous basis, and most have been in production for over a decade. If you are looking for simple, concentrated, low turnover, and tax efficient model portfolios we would like to talk with you. KCR also offers a wide range of easy-to-use but sophisticated tools. Our toolkits can help identify mispriced stocks with the best and worst risk/reward characteristics, estimate a stock’s duration and warn you when a company is engaging in low-quality accounting. Over the last 12 years, KCR has built and offers time-tested and class-leading products built by experienced and proven money managers for fixed to low prices.
Kailash Capital’s sister company, L2 Asset Management, runs market neutral, long/short, large-cap, and mid-cap long-only portfolios with a value and quality bias. L2 employs a highly disciplined investment process characterized by moderate concentration, low turnover, high tax efficiency, and low fees. While nobody can predict the future, we believe the recent resurgence in risk-adjusted returns seen across all products is the beginning of what may be a long period where speculation is punished, and prudence and patience rewarded.

ADDITIONAL READING

The topics discussed in this article are aimed at seasoned professionals, as such, we have included some extra reading for anyone seeking out more information related to the topics above.

Click the following to read more about what happened to enron

Disclaimer

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