Goldman Expertise Can’t Help Momentum Funds Gain Momentum

There are simple exchange-traded fund strategies (“buy gold”) and more-ambitious exchange-traded fund strategies (“dynamically allocate across a basket of assets based on historical price momentum and volatility.”)

ALPS Distributors Inc. offers simple ETFs like the U.S. Oil Fund (strategy: buy oil, basically) as well as the more-ambitious varieties, such as those of the dynamically allocating persuasion. Except investors weren’t allocating funds to those ambitious ETFs in a dynamic fashion, even though they were advertised as a way to gain “access to Goldman Sachs’ expertise.” As a result ALPS is euthanizing them.

So here is their obituary: The ALPS/GS Momentum Builder Index ETF series, an ambitious group of securities that attempted to outsmart the market by licensing Goldman Sachs Group Inc. strategies based on historical price momentum, volatility and correlation, died this month after a lifelong battle with investor disinterest. They were less than 2 years old.

None of the four ETFs has more than about $3.4 million in assets. While not all of them performed terribly, neither did they perform, uh, dynamically. Which is kind of sad, really, if you believe in old-fashioned notions like the powers of math and that the biggest brains on Wall Street can outfox the mailman who puts his whole 401(k) into the Vanguard 500 Index Fund.

Wet Screens

Now, some may shake their fists in the air and curse at a market perceived to be hypnotized into marching in a straight line by the magic wand of the Federal Reserve. And maybe that’s a fair reaction, but at the end of it all you’re left with is tired fist and maybe some spittle on three or four of your computer screens.

Anyway, here’s what the back of the baseball cards would look like for the Goldman-inspired funds (for comparison, note that the S&P 500 -- arguably not the best benchmark to compare each of these to, but let’s do it anyway -- has returned about 40 percent including dividends since these ETFs started trading in December 2012):

*The ALPS/GS Risk-Adjusted Return U.S. Large Cap Index ETF did the best since inception, returning 38 percent, less than the 41 percent gain in the Russell 1000 Index from which it picks its stocks. Selection criteria included average analyst price estimates adjusted by volatility, with sectors showing lower anticipated risk getting a higher allocation. Its expense ratio is 0.55 percent, compared with 0.15 percent for the iShares Russell 1000 ETF. Top holdings: Pharmacyclics Inc., Cameron International Corp., Biomarin Pharmaceutical Inc. and Madison Square Garden Co. (Goldman’s risk modelers are, presumably, not Knicks fans.)

Baseball Cards

*The ALPS/GS Momentum Builder Multi-Asset Index ETF returned 9.5 percent since inception and had an expense ratio of 0.68 percent. This is an “ETF squared” since it only holds four other ETFs tracking real-estate, emerging markets stocks, Treasuries maturing in more than 20 years and Latin American equities.

*The ALPS/GS Momentum Builder Growth Markets Equities and U.S. Treasuries Index ETF. This baseball card will not be a collector’s item: the fund has returned negative 11 percent since inception. It holds ETFs tracking stocks in India, Brazil, Turkey and Indonesia and just a dash (0.2 percent) of long-maturity Treasuries.

*The ALPS/GS Momentum Builder Asia ex-Japan and U.S. Treasuries Index ETF lost 2.7 percent on a total-return basis since inception.

“On consideration of current market conditions, as well as prospects for growth in the funds’ assets, the board determined that it was in the best interests of the funds and their shareholders to liquidate the funds’ shares,” ALPS said yesterday in statement.

For sure, the ALPS/GS offerings aren’t the only momentum funds struggling to catch lightning in a bottle from past high-flying stocks. The $12.4 million SPDR S&P 1500 Momentum Tilt ETF has returned 42 percent since its inception in 2012, which is pretty sweet but not as sweet as the almost 44 percent return for the S&P 1500 itself. Neither have the $313 million iShares MSCI USA Momentum Index ETF or the AQR Momentum Fund blown the doors off large, mid and small-cap benchmarks since their inceptions.

The 16 U.S. momentum ETFs have a total of $3.7 billion in assets yet have only taken in $57 million this year, according to data compiled by Bloomberg.

The lesson to take away, if it’s not obvious by now, is that catching lightning in a ETF jar is not easy no matter how dynamically you allocate.

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