Click here to learn more about the subject “Momentum Strategy: Turning The Focus Onto The Strongest Investments”.
Prize-winning ideas factory
In March the Swiss Derivative Awards ceremony was held for the 14th time in Zurich's Aura. When choosing the winners of these prestigious awards, the jury looks first and foremost at outstanding and innovative products as well as particular achievements. Leonteq clearly caught the eye of the experts again this year: not only was the Zurich issuer for the ninth time in a row one of the structured financial products companies honoured for their “top service”, it was also able to defend its title in the “Best equity product” and “Best product on alternative underlyings” categories. Leonteq demonstrated its innovative capacity yet again shortly before the “Oscars” for the derivatives industry, when a tracker certificate on the Leonteq Multi Asset Index was listed on the SIX on 11 February. The expert in structured investment products has thus developed a momentum strategy aimed specifically at Swiss investors.
“The trend is your friend”
The principle behind this popular investment approach is simple: try to exploit an existing and identified market trend. As soon as an investment performs positively, its weighting in the portfolio is increased. If, on the other hand, an asset comes under pressure and delivers below-average returns, its share must be reduced. This procedure makes sense if only because stock market trends in the past have frequently shown evidence of a certain “inertia”. Winners remain winners - for now! In addition, emotions, which are known to be the greatest enemy of the successful investor, do not play any role. Instead, the strategy is based on rules defined in advance. This also applies for the Leonteq Multi Asset Index. Its initiators have defined an intelligent and systematic selection procedure.
Rolling investment process
The new benchmark tracks the price trends in five different asset classes. Each of them is represented by an Exchange Traded Fund (ETF) denominated in Swiss francs. The index was initially divided into 12 units of equal weighting. On an annual adjustment date, each units invests in the ETF that has shown the best performance over the last 12 months. The adjustment days of the individual blocks are offset by a month (see illustration). This mechanism ensures that the current prevailing trend – month by month – is captured speedily and dynamically. Furthermore, the volatility of the strategy is to be carefully reduced by the gradual purchase and sale of ETFs. The starting pistol for the index was fired on 3 December 2018. Since then LIXX GmbH, which is responsible for the independent calculations, has put the benchmark under the microscope on the first business day of each month and adjusted the weighting accordingly.