Professional money managers are navigating “dark days” despite global sharemarkets reaching record highs. Confidence in traditional fundamental analysis is low, as markets increasingly favour momentum over established principles like mean reversion. Rising prices, rather than inherent company value, now often dictate investor interest, rendering conventional tools less potent.
Data confirms “momentum” investing – buying appreciating assets – has consistently outperformed all other approaches for 15 years. Market strategist Matt King states, “mean reversion has lost its power, and consistently been trumped by momentum.” A January 2024 investment in the MSCI World Index’s “momentum” factor is now worth about $1.90, significantly outpacing “growth” ($1.60) and “value” ($1.40).
Macquarie strategist Viktor Shvets, while wary of the US equity bubble, argues “this time is different.” He cites unprecedented global excess capital fueling rapid technological development like AI, accelerating business cycles. Winners and losers emerge swiftly. Shvets advises diversifying within major themes (e.g., automation, alternative energy) with a venture capitalist approach, seeking new bubbles while avoiding declining sectors. He stresses avoiding high-conviction calls due to extreme market uncertainties.
In this momentum-driven landscape, investors must remain nimble and humble. Matt King warns that while momentum isn’t a sell signal, widespread “melt-ups” indicate high correlation; a reversal could be broad. Instead of timing market levels, King suggests hedging the “shape of the eventual unwind” through managing correlations, acknowledging the challenge of prudently sitting out powerful rallies.
