ADME applies behavioral finance principles to momentum investing, attempting to capture the tendency of winning stocks to keep winning while avoiding the typical momentum crash that occurs during market reversals. The fund targets stocks with strong price trends but incorporates behavioral screens to sidestep the crowded trades that often implode.
How It Works
The fund ranks stocks by 12-month price momentum excluding the most recent month, then applies behavioral filters to eliminate overbought names where sentiment has gotten too frothy. Holdings are equal-weighted and rebalanced monthly to maintain momentum exposure while preventing concentration in yesterday's winners. This high-turnover approach differs from traditional momentum strategies that often hold positions longer and weight by market cap.
Key Features
- Monthly rebalancing captures momentum shifts faster than quarterly strategies but generates higher turnover
- Behavioral screens attempt to dodge the momentum crashes that plague pure price-based strategies
- Equal weighting prevents mega-cap dominance common in market-cap weighted momentum funds
Risks
- Momentum strategies can lose 20-30% in sharp reversals when the market suddenly rotates to value
- Monthly rebalancing creates significant turnover costs that could eat into returns in choppy markets
- Behavioral filters are unproven — may miss rallies or fail to prevent crashes as intended
Who Should Own This
Best suited for tactical allocators who actively manage factor exposures and can stomach 15-20% drawdowns during style rotations. Works as a 5-10% satellite position for investors who believe markets trend more than they mean-revert. Not appropriate for buy-and-hold investors given the strategy's feast-or-famine return profile and high turnover.