July 26, 2013
By Steve Blumenthal
Sometimes I sit back and reflect on just how grateful I am to be in this business. Challenging? Yes, but very intellectually stimulating. I am extremely excited today after a productive meeting focusing on how to better manage fixed income portfolio exposure. I hope this On My Radar finds you sharing in similar excitement in your work.
I snuck away to Virginia’s Eastern Shore (Chesapeake Bay) with Susan this past week. Some rare quiet time together (with six kids between us) but it was back to work yesterday as I spent an outstanding day with Mark Finn and his team at Vantage Consulting Group. Mark is a legend in the pension and endowment space. He consults and manages more than $7 billion. Without question, Mark is one of the smartest investment minds I know.
We’ve been working on using an algorithm Mark has relied on for years and applying it to a basket of seven fixed income (mostly Vanguard) ETFs. It is a relative strength momentum process that decides which two of the seven fixed income ETFs should be held. It is a process that may better navigate the challenges tied to todays unique period of global central bank activity. We are in unchartered waters.
We also spent some time talking about the global macro picture, growth, inflation and the direction of interest rates. I remember a call in early 2007 from Mark regarding the coming sub-prime time bomb and systemic risks tied to leveraged derivatives. Intuitive, smart and deeply connected, we share a common view that another financial crisis is probable. Get prepared and position accordingly. I truly enjoy my time with Mark and his team. It was a long day and l left Virginia happy, charged and focused on the work ahead.
Along those lines is a piece I share today from my very good friend, Dr. Christopher Geczy. Chris is an academic scholar with real-life investment experience. Chris has been on the faculty at The Wharton School for over 15 years and currently serves as the Academic Director of the Wharton Wealth Management Initiative and he is a Fellow of the Wharton Financial Institutions Center.
Chris also co-founded Forefront Analytics. Forefront’s strategies generally employ core risk management principles and processes that have been developed by their team of leaders in academic thought and market practice. Do a quick Google search on Chris. He is simply brilliant.
You’ll be hearing a lot more from me about Chris, his firm and the work we are doing together.
Following is Chris and Mikhail Samonov from OctoQuant’s fascinating white paper on Price Momentum investing.
212 Years of Price Momentum – by Dr. Christopher Geczy, University of Pennsylvania, and Mikhail Samonov, OctoQuant
“We assemble a dataset of U.S. security prices between 1801 and 1926, and create an out-of-sample test of the price momentum strategy, discovered in the post-1927 data. The pre-1927 momentum profits remain positive and statistically significant. Additional time series data strengthens the evidence that momentum is dynamically exposed to market beta, conditional on the sign and duration of the tailing market state. In the beginning of each market state, momentum’s beta is opposite from the new market direction, generating a negative contribution to momentum profits around market turning points. A dynamically hedged momentum strategy significantly outperforms the un-hedged strategy.”
Click here to read the full white paper.
Have a great weekend,
Steve
Stephen B. Blumenthal
Founder & CEO
CMG Capital Management Group, Inc.
Philadelphia – King of Prussia, PA
steve@cmgwealth.com
610-989-9090 Phone
610-989-9092 Fax
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