|
Two Complimentary strategies- price momentum and value investing- are employed in managing equity portfolios. For equities, the price momentum strategy focuses on those stocks which are performing the best relative to the rest of the market. The objective is to be invested in those stocks which are exhibiting rapid increases in price. At the other end of the investment spectrum, the value strategy selects those stocks which appear to be the most attractively priced relative to the rest of the market, and which will appreciate over time as investors recognize their inherent value.
For bonds, the momentum strategy takes advantage of the fact that once interest rate trends are in place; they tend to persist for a relatively long period of time. Both short and long-term interest rate momentum is taken into account. In regard to value, the strategy compares the yield between Treasury Bills and the long Treasury Bond, When the gap is wide, the investor is being compensated for taking risk and the longer maturity securities should be owned; then the spread is narrow, there is not adequate compensation, and the shorter-term securities are preferable.
Within a portfolio, the asset mix is dictated by the position of the quantitative models. When the Cambridge technical composite indicates a favorable environment for stocks, equity funds are used to purchase 30 stocks selected according to the momentum and value strategies. When the verdict of the composite indicates an unfavorable environment, the more volatile momentum component (10 stocks) is liquidated and the proceeds are held in cash-equivalent securities. The composition of the fixed income portion of the portfolio will be dependent on whether the interest rate momentum and value models are positive or negative. The average maturity is lengthened when both models are positive and shortened when one or both are negative.
|
