The Way Hasley momentum fund is a type of actively managed passive fund that offers exposure to 24 developed equity markets through an equally weighted portfolio of 14 ETFs. The actively managed element of the fund is mechanical and based around the issue of market timing. It differs from an actively managed passive fund where a fund manager constructs an ETF portfolio that is weighted according to their views. Instead, the decision whether to invest in a particular developed equity market or to hold cash is determined by a trading system developed by academics at the Cass Business School.
This trading system looks at developed equity indices on a monthly basis in relation to their 12 month moving averages. Moving averages look at the average level of an index over rolling 12-month periods to identify upward and downward market trends. This enables the trading system to signal whether to stay invested in rising markets or move to cash to avoid market falls, which Hasley will then implement in the fund.
The Way Group says backtesting of the strategy by the Cass Business School has shown it should match or beat a long term passive strategy with two thirds of the volatility. The company feels the back-testing of its strategy is more credible than back tests of portfolios constructed by fund managers, where the results can be affected by the benefit of hindsight.
Way says it is difficult to find actively managed funds that consistently outperform and this has led to many investors turning to funds such as trackers and ETFs, which cost less but passively follow falling markets. Investors in Way’s fund may feel the initial impact of a market fall while they await the signal to move to cash, but once triggered, it should cushion them from the worst of the falls. Investors may also miss out the start of an upward trend while the awaut the signal to move out of cash, but should be entering these markets in better shape than funds that have to recover lost ground after passively following a downward trend.