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Momentum is a powerful force, as anyone who has tried to join colleagues for “just one quick drink” after work knows well. Momentum is also an influential factor in financial markets, so powerful that multibillion-dollar investment groups have been built on its back.
A paper by Rob Arnott of Research Affiliates, a leading light in investment factor research, estimates, however, that no US mutual fund with “momentum” in its name has since its inception outperformed their benchmark net of fees and expenses.
The sample size is small, but even taking the broader US mutual fund universe and screening for those that exhibit momentum strategy tendencies shows widespread underperformance. Indeed, he calculates that a simple momentum model has provided no market-beating alpha in the past 18 years, even before trading costs and fees.
Regards,
Ted
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