The end of what can be an abysmal month (alongside or after September …) as far as equity markets is upon us. Absent a meaningful speed bump between now and market close, October will turn out to have produced rather good results for investors.
In terms of the Canadian Exchange Traded Funds space, we will go through our usual review of flows and performance shortly.
In the meantime, with the performance of both their Morningstar Value (FXM + 4.58% this month to Oct 30), and Morningstar Momentum (WXM + 5.82% this month) ETFs, we jumped the queue a little to look at the evolution of Assets under Management for First Asset in October.
October’s AUM has risen in excess of 35%, with the benefit of the launch of both US Value and Momentum yes, but most importantly, with significant inflows into both Canadian Momentum and Value, resulting in overall assets for WXM and FXM rising sharply this month ie >60% AUM growth in each.
Other areas of growth look to have included Canadian and US Dividends, as well as some of the earlier covered call (partial ie 25% covered), namely Materials, Oil and Gas, as well as Technology.
Our sense is that the momentum garnered by the Canadian Value and Momentum strategies will favorably impact the recently launched US Value and Momentum ETFs. As to whether the pace of gains the strategies have achieved is sustainable – recall that even if the AUM growth suggests that investors have clearly noticed that performance (which they are always told they shouldn’t do … ie chase performance) – what you are looking with these ETFs is exposure to factors, with the holding refreshed frequently, as well as rebalanced to EW, which limits the potential negative impact of any one position pulling back sharply as far as the overall portfolio.
Perhaps most importantly in our view, while these strategies result in higher turnover, they do one key thing investors tend to be loath to do – SELL. When a stock no longer qualifies based on the factors/screens … OUT IT GOES!. This sell discipline is something most individual investors fail at miserably. Why? Because nobody ever likes to admit they were wrong earlier when buying a stock, and somehow then, the victory is in getting back to “breaking-even”, even if, too often, it a) isn’t likely to happen, except in the eyes of the stubborn holder … or b)prevents pragmatic consideration of better investment opportunities.
Disclosure: WXM is included in several of ETFinsight’s model portfolios and … we’ve unfortunately missed FXM thus far…