Exit Rank

In a momentum investing portfolio, stocks are rebalanced on a pre-determined date or day.

For example, if a portfolio consists of 20 stocks, the investment basket will include the top 20 stocks based on the ranking method selected by the investor. On the rebalance date, stocks that fall below the exit rank criteria will be removed from the portfolio, and new stocks will be added.

If the exit rank is set to 20 in a 20-stock portfolio, any stock that falls below rank 20 will be exited. However, this can sometimes lead to excessive churn, where a stock that drops to rank 22 or 25 gets removed, only to be re-added in the next cycle. To minimize this churn, a buffer method is introduced.

• If the buffer is 100%, the exit rank will be 40 in a 20-stock portfolio. In this case, only stocks falling below rank 40 will be removed, while those ranked within the top 40 will remain eligible.
• If the buffer is 50%, the exit rank will be 30 in a 20-stock portfolio.
• If the portfolio size is 10, a 100% buffer would set the exit rank at 20.

A 100% buffer is recommended to balance stability and flexibility in the portfolio.

Please note: In the Momentify platform, you must enter the exit rank directly, not the buffer percentage.