Diversification Ain't Easy

Anyone believing in a globally diversified portfolio probably has some emerging market exposure and in 2025, emerging market equities have done well. The iShares Emerging Market ETF (EEM) is far ahead of the S&P 500. But emerging markets have had a long run of lagging domestic.

There's no defending that table other than acknowledging that was a difficult run and for all we know, 2025 could just be a blip and emerging goes back to lagging again. Or, maybe 2025 is year one of a multi-year run of fantastic outperformance. There's no way to know which is why it makes sense to maintain some exposure more often than not. 

Barron's wrote favorably about quality stocks and included mention of a couple of ETFs that screen for the quality factor one way or another. One way or another is a key point because as Barron's notes, there isn't a universal definition. Often, quality relates to earnings and balance sheet strength but it is fuzzy.

You know how some comments or quotes just stick with you? At some point many years ago, someone replied to a Tweet from Wes Gray (pretty sure that's right) and said for broad based exposure, just mix quality and momentum and be done with it. I have been fascinated by that like it could be some sort of magic bullet even though it probably isn't.

For a little context we've looked at Invesco Momentum (SPMO) as probably being the best performing momentum ETF. We've looked at iShares Quality Factor ETF (QUAL) pretty much never differentiating from the S&P 500, the GMO Quality ETF (QLTY) has done quite well but it's track record is short so it's tough to know yet if it's been lucky or good. Many of the other big ETF providers have a quality ETF, a momentum ETF or both and when we look, they rarely show any sort of interesting result with SPMO being an apparent exception. 

It turns out there is a quality and momentum blend ETF, Virtus Terranova Quality/Momentum ETF (JOET) which is obviously connected to the guy who is/was on CNBC. JOET has been around for a few years so we can see if there is anything interesting with its result, does the fund prove the Twitter comment correct?

FQAL is Fidelity Quality and FDMO is Fidelity Momentum. I did not use SPMO because until proven otherwise, I think it is an exception not the rule for momentum funds. There's not much that is compelling about JOET. Combining FQAL and FDMO is nothing special but I doubt it would hurt anyone either, I'm sure it would be fine but the drawdown chart tells us not expect any real protection in a large decline. I'm going to continue to remember the quality/momentum comment and continue to seek out anything that might prove it to be a magic bullet. 

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