IM Asset Management has introduced a UK equity fund and a bond fund based on the firm’s momentum-driven investment process.
The CF IM fund aims for growth by investing at least 80 per cent in UK equities and the CF IM bond fund aims for income by investing globally in fixed-income securities, mainly investment-grade. Both funds are managed by chief executive Richard Potts, who has over 25 years’ investment experience with firms such as HSBC, Philips & Drew, Cazenove, Eagle Star and Baring Investment Management.
IM Asset Management says momentum investing is built on specific rules about what is happening now, not what happened in the past or predictions about the future. Rule one is to base decisions on momentum and trend following, as investor perception of the economy and outlook for growth affects stockmarket pricing. IM Asset Management aims to identify the trends as they begin and follow them until they end, using the swings within each trend as an entry point.
Rule two is relative strength, or the tendency for winning stocks to continue to produce good results. Rule three is identifying cycles within a trend to find the best timing and the best stocks to buy. Smaller initial investments are made at the beginning of a trend and increased them once Potts is sure the trend is established rather than false signal. Rule four is basing decisions on probabilities, as the probability that a stock with positive momentum and earnings will produce good, consistent returns is high. The final rule is to use a stop loss to cut negative positions rather than holding stocks too long.
IM Asset Management’s investment strategy differs from funds that are based on the principal of buying undervalued stocks and waiting for the market to recognise their true value. However, it may be difficult to time the early entry into a trend and quick exit out of a trend, even using a computer-based system. The turnover of stocks in a portfolio that uses momentum investing can also be high, which would add to the costs.