After months of underperformance, momentum stocks steadied and some baskets started to outperform global markets through May 30, though they have yet to make up for recent losses according to a recent UBS report. There has been speculation that momentum stocks like Netflix, Inc. (NASDAQ:NFLX), Facebook Inc (NASDAQ:FB) that have reaped huge gains from the bull market so far could be a drag on the market for the rest of the year.
“In the developed markets High 12 Month Price Momentum slightly outperformed in May but is down over three and six months; similarly in the emerging markets,” write UBS analysts Simon Iley, David Jessop, and Claire Jones.
Talk of inflation has been swirling for some time amid all the stimulus that's been pouring into the market and the soaring debt levels in the U.S. The Federal Reserve has said that any inflation that does occur will be temporary, but one hedge fund macro trader says there are plenty of reasons not to Read More
Some momentum stocks basket put up good numbers, but results still mixed
The best of the bunch were high 12 month price momentum stocks in North America, up 1.05% (all the baskets are measured against the corresponding Dow Jones index) followed by the same basket in the UK, up 0.99%. Asia moved in the opposite direction with Japanese 12 month high price momentum stocks underperforming 1.54% and Asia ex-Japan falling behind by 0.92%, bringing the global average to a 0.32% gain.
High 1 month price momentum also gave a different signal, falling behind the relevant indexes almost across the board. EU ex-UK moved tracked the index but Asia ex-Japan fell 1.1%, the UK fell 1.38%, and the US fell 0.62% bringing the high 1 month price momentum global basket to 0.76% underperformance.
Momentum stocks: Low debt to enterprise value is best performing global style in May
Low debt/EV was the best performing style last month, outperforming by 0.5% globally, driven by 2.58% outperformance in Latin America and 1.00% outperformance in North America that was partially offset with 1.78% underperformance in the UK. High debt/EV underperformed by 0.48% globally, mostly because of 2.56% underperformance in Asia ex-Japan.
The worst performing style was low historical EPS growth, down 1.07%. The Asia ex-Japan basket underperformed by 2.51%, the UK underperformed by 1.07%, and North America fell behind by 1.0%, though Latin America was up 0.71%. High historical EPS growth was up 0.29% globally, led by 1.06% outperformance in North America.
The best performing region-specific style was low capex to depreciation in Latin America, which outperformed the underlying index by 2.76%. Latin America had a 4.81 point spread between the best and worst performing styles (high earnings yield, -2.05%), the widest of any region. The 2.56% underperformance of high debt/EV in Asia ex-Japan was the worst regional basket.