Quant Trade Betting on Past Winners Suffers Record Exodus

(Bloomberg) -- Exchange-traded fund investors just threw in the towel on a strategy that bets this year's winners will keep on winning.

Almost $1.6 billion was withdrawn from momentum-focused ETFs in October, the most for any month on record, according to Bloomberg Intelligence data going back to 2012. The outflows were the biggest of any smart-beta segment last month, and marked a change of pace after two quarters of net inflows, the data showed.

Much of the pain came from the $8.9 billion iShares Edge MSCI USA Momentum Factor ETF, which trades under the ticker MTUM. With investors pulling more than $1 billion from the long-only strategy, the fund also had its worst month ever, data compiled by Bloomberg show. In the latest session, the ETF posted a $154.8 million outflow, reducing its assets to the lowest level since June.

Read: IShares Edge MSCI USA Momentum Factor Daily Outflows $154.8 Mln

The change of heart is happening as investors debate the sustainability of a rotation sweeping markets. Momentum selling gained steam this week, with a Bloomberg pure measure of the factor -- which controls for any extra effect from other sectors or styles -- falling to its lowest level since 2017. Meanwhile, an equivalent gauge of value that focuses on cheap stocks is trading at a five-month high.

“This very long bull market has been dominated by growth, and the last several years primarily by momentum,” said Craig Birk, chief investment officer at Personal Capital, which oversees $10 billion. “Eventually, those cycles do always revert. It's not uncommon for them to be very long and very strong.”

--With assistance from Rachel Evans.

To contact the reporter on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Rita Nazareth, Brendan Walsh

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