Momentum Investing is Back, At Least for Now

The strategy of buying whatever sector has had the greatest price or earnings gains in the past twelve months seems to have come back in fashion, according to a recent article in Investment News.

The article cites a recent white paper by AQR that addressed momentum investment results and reported that “trend-following has delivered strong positive returns and realized a low correlation to traditional assets classes for more than a century.”

At the Morningstar ETF conference early in September, AQR principal Ronen Israel said that academic studies assume over-inflated trading costs associated with momentum investing (typically considered a disadvantage) and, further, that tax efficiencies are about as good as those related to a value strategy.

The article notes that although value strategies have “generally been more popular with investors” this year, financial advisers are exhibiting increased interest. The ETF market, it says, “has been quick to catch on,” referring to a recently announced momentum-focused Fidelity fund that will seek “stocks of companies with historically high total and volatility-adjusted returns, high positive earnings surprises and low average short interest.”