Canadian ETF provider, Horizons ETFs, has launched the Horizons Managed Multi-Asset Momentum ETF (HMA), an actively managed ETF which targets multiple global asset classes based on their momentum characteristics.

Howard Atkinson, President of Horizons ETFs.

According to Howard Atkinson, President of Horizons ETFs: “HMA seeks to give Canadian investors optimal risk-adjusted exposure, by not only capturing strong pricing uptrends, but also having a strong focus on risk management, such as moving to cash if there are no observable investment opportunities.”

Momentum investing seeks to capitalise on existing trends in the market. For example, if the price of a certain index or security is trending up then a momentum investor believes that additional gains can be made.

“We look at momentum investing as a way to capitalise on long-term uptrends and minimise the impact of market drawdowns, and HMA is an opportunity for investors to access our model in the liquid, low-cost ETF structure,” said Jean-Luc Landry, Chairman and CEO of Landry Investment Management (LIM), who carry out the fund’s investment strategy on Horizons’ behalf.

Momentum-based investment strategies have historically provided superior risk-adjusted returns compared to traditional market-cap-weighted strategies. While this appears at odds with efficient market theories, which suggest that past performance should not be indicative of future performance, behavioural finance theories provide a possible explanation. These theories suggest that investors are often slow to react to new information and tend sell their winners and hold on to their losers. These shortcomings provide an opportunity for long-term investors to generate excess returns through momentum strategies.

The strategy allocates between 16 global asset classes including Canadian and US equities, emerging market equities, US and Canadian bonds, real estate investment trusts and gold. LIM use a proprietary momentum model to determine which asset classes they expected to outperform and include only the most highly rated in the fund. In the event that less than seven asset classes are eligible to be invested in, the fund will hold cash in lieu of the ineligible positions

Exposure to the asset classes is gained primarily through low-cost ETFs and to avoid concentrated risks, no more than 20% of the net asset value of the fund will be invested in a single asset class, with the exception of cash and cash equivalents.

The ETF has been listed on the Toronto Stock Exchange (TSX) and carries a management fee of 0.85%.

US investors in search of similar global momentum strategies could also look to the Cambria Global Momentum ETF (GMOM) which trades on the NYSE Arca exchange.