A Deep Dive into Growth & Momentum

On Behind the Markets, a podcast brought to you by Jeremy Schwartz, WisdomTree’s Global Head of Research, we talk to market strategists, business executives and financial advisors about important trends in the financial markets. 

In this episode, Jeremy talks to Randy Watts, CIO of O’Neil Global Advisors (OGA), about the history of the O’Neil team and their unique approach to identify long-term winning stocks.

Listeners will hear about:

• How William O’Neil came to select the combination of growth and momentum indicators that their team focuses on.
• The stock selection approach referred to as ‘CANSLIM’ that O’Neil made popular, focusing on a combination on earnings growth, sales growth, margins, innovative products, share reductions and other factors.
• A discussion of long-term stocks and how much of overall market gains are concentrated in a small percentage of stocks.
• How the O’Neil team built the new O’Neil Growth Index, which WisdomTree licensed for the WisdomTree U.S. Growth & Momentum Fund (WGRO). WGRO seeks to track the price and yield performance, before fees and expenses, of the O’Neil Growth Index. 
• This discussion included analysis of proprietary O’Neil factors like the OGA Datagraph rating and the components of earnings growth and relative strength.
• The risks to traditional growth investing—from stocks becoming overly extended with large drawdowns.
• Why the O’Neil team focuses on a Pullback factor to find attractive entry points for stocks—and how this focuses on stocks with positive long-term momentum trends but that have ‘pulled back’ off their highs over the short term.
• Why the Hotness factors and volatility factors are included to manage volatility and avoid crowding in more speculative names.
• Some of the value exposures that recently came into other momentum strategies, particularly one that follows a twice per year rebalancing process —and how the O’Neil index maintains its growth discipline.
• The importance of monthly rebalancing for momentum strategies.
• The concentration of traditional mega-cap growth indexes in a handful of names and why the O’Neil team set up their index with a more diversified factor weighting approach that tilts around an equal-weighted approach.
• What sectors the O’Neil team likes looking forward, and how the macro environment and interest rates might impact growth stocks.

You can listen to our full conversation with Randy Watts below.