Momentum Investing: automated stock selection

ETFs are available which select holdings according to momentum criteria.  One such example is WXM.TO (issued Feb 2012) which replicates the Morningstar Canada Momentum Index (started Dec 2000).

The fund holds 30 equal positions of stocks ranked using a weighted factor:
Trailing Return on Equity 20%
3- Month EPS Estimate Revision (Current Year) 30%
Latest Quarterly Earnings Surprise 10%
Price Change from Month-End 3 Months Ago 10%
Price Change from Month-End 9 Months Ago 10%
Percent Change in Price from 12 Month High 20%

60% of the factor is fundamental, 40% is price momentum.

Results:

During the 2003-2007 bull market, the index returned 40% annually and 22% annually since 2009.

blog figs

The volume on all momentum products is low, currently around 3,000 daily for WXM with spikes over 10,000.  ETF liquidity and spreads are linked to the underlying stocks and therefore should not pose a problem when purchasing.  I would be interested to see the effect of selling a $100K position (approximately the maximum daily volume).

Further information can be found at the following locations:

http://www.exchangetradedforum.com/documents/presentations2012/Wed-1045-BeyondTraditionalIndexing.pdf

http://www.firstasset.com/products/overview/?fund=First+Asset+Morningstar+Canada+Momentum+Index+ETF

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