DWAS, small cap momentum was released just over a year ago. The fund holds 200 small-cap stocks ranked with a proprietary relative strength algorithm, rebalanced quarterly.
Fama-French small-cap high-momentum holds the intersection of the small-cap half of the market and stocks in the top third by 12 month price change. Returns since 1975 were shown in the previous post (22% CAR).
Daily returns correlate 84% since launch. The distribution is shown below:
A cubic spline is the first reasonable fit due to the non-linearity at the outliers. The bulk of the daily changes are within +/- 1% and the slope in this region is very close to 1 therefore the ETF tracks Fama-French very well so far.
There is also an all-cap momentum ETF with a longer history. I will analyze that in a later post.
The Ken French data library contains a dataset of US stocks segmented 6 ways: small / big and lo / med / hi momentum (defined as 12 month price change). Plotting 40 years of data and overlaying the St. Louis Fed recession model:
Points of note:
- Small-cap hi-momentum out-performance is consistent (green line, 22% CAR since 1975).
- Tracking recessions allows some large drops to be anticipated (1991, 2008) but not 1987 or 1998.
- Price recovery following large drops is rapid.
- There are ETFs tracking small-cap-hi-momentum (green line) [DWAS] and all-cap-hi-momentum (green and orange) [PDP].
A quick reference post on how to convert Canadian dollars to US dollars cheaply (i.e. without paying the exorbitant 2% broker fee).
The concept is to choose a liquid stock trading on both the Toronto and New York stock exchange. Buy in Canada, sell in New York and the conversion is complete.
– Buy 100 RY on TSE from CDN account using Canadian dollars.
– Sell 100 RY on NYSE, specifying funds going into USD account, for US dollars.
Note: you must select US$ account, and specify to sell on NYSE. The $US funds should be available immediately.
I recently achieved 1.030 including commissions, below the noon posted rate of 1.034! The bank rate would be 1.050+.