Investing requires fund managers, investors, and analysts to apply different investment approaches and investment thesis. The momentum-based approach enhances the performance of the Defender Credit Fund by capitalizing on prevailing trends in the SME lending market. This strategy operates on the basis that assets with strong recent performance are likely to continue their upward trajectory, allowing the Fund to make informed investment decisions based on historical data and market behavior.
Key Components of the Momentum-Based Approach
Trend Identification: The Defender Credit Fund uses systematic tools to identify and measure momentum across various asset classes. By analyzing the performance of such loans, the fund allocates resources to those with the strongest upward trends and maximizes potential returns while maximizing exposure to underperforming assets.
Tactical Allocation: The Fund uses a tactical allocation strategy that allows it to adjust its portfolio based on signals it receives from momentum trading. This involves reallocating capital to sectors that have higher returns than the market average. For example, if specific SME sectors show robust growth, the fund can increase exposure to those areas and boost their overall performance.
Risk Mitigation: A significant advantage of the momentum-based approach is its ability to incorporate the right and appropriate risk management techniques. The fund uses non-correlated strategies and active risk hedging to provide more consistent results. By monitoring macroeconomic indicators, the fund hedges when risk is elevated, which protects investors from potential downturns.
Income Generation: Even as the momentum strategy is not solely focused on capital appreciation; it also seeks to generate income through regular distributions. By investing in high-quality, secured loans with positive momentum, the Fund can provide stable income streams to investors while maintaining a growth-oriented approach. This dual focus on income and growth makes the Fund appealing to a broader range of investors.
Performance Metrics
The effectiveness of the momentum-based strategy can be observed in the Fund’s performance metrics. For instance, the Defender Credit Fund has reported a 12-month return of 10.5% and a 3-year annualized return of 9.2% as of July 2024. These figures indicate that the Fund’s momentum strategy has successfully captured upward trends in the SME lending market, contributing to its overall performance.
Academic Research Support for Momentum Investing
Research supports the efficacy of momentum investing, demonstrating that assets with strong recent performance tend to continue performing well in the future. Studies by Jegadeesh and Titman (1993) highlighted that stocks exhibiting high performance over a specific period often maintain their upward trajectory, which is a principle that the Defender Credit Fund applies to its investment strategy. This empirical evidence reinforces the Fund’s approach, providing a solid foundation for its investment decisions.
The momentum-based strategy plays a critical role in enhancing the Defender Credit Fund’s ability to capture emerging trends within the SME lending sector. By integrating systematic trend analysis, tactical allocation, and rigorous risk management, the Fund is positioned to generate attractive returns while maintaining a steady income stream for its investors. As this approach continues to evolve, the Fund remains a strong contender for those looking to gain exposure to the alternative lending market in Australia.
