Momentum index returns

From Bogleheads
Jump to navigation Jump to search
Fig. Source: Evaluating Alternate Beta Strategies, Xiaowei Kang, Journal of Indexes Europe, March/April 2012

Index providers have recently introduced indexes designed to capture the returns of the momentum factor in stock market returns. Academic research posits momentum[note 1] as one of the factors that drive stock market returns:[1][2][3]

Index returns

AQR (maintained by S&P),[note 2], FTSE, MSCI,[note 3] S&P,[note 4] and Russell-Axioma[note 5] provide momentum indexes.

The following tables provides return and standard deviation for the indexes, which benchmark US large cap, US small cap, and developed ex- US markets.[4]

Table. Momentum indexes[5][6][7][8][9][10]

(View Google Spreadsheet in browser, then File --> Download as to download the file.)
Note: If the spreadsheet is blank, select a different sheet, then back to that sheet. The image will be refreshed.

Indexes: AQR Momentum Index; AQR Small Cap Momentum Index; AQR International Momentum Index; FTSE US Momentum Index; MSCI US Momentum Index, Russell 1000® High Momentum Index; Russell 2000® High Momentum Index; Russell Developed ex-US Large Cap High Momentum Index; S&P 1500 Positive Momentum Tilt Index

Investment options

Investors in the U.S. can invest in exchange traded funds based on the MSCI USA Momentum Index and the S&P 1500 Positive Momentum Tilt Index. The table below provides a summary of available offerings. Russell brought to market ETFs tracking the firm's volatility, beta, and momentum indexes in 2011, but subsequently closed them in October, 2012, due to low asset accumulation.[11]

Funds which Track the S&P 1500 Positive Momentum Tilt Index
Fund Ticker Expense ratio Holdings* Morningstar Info**
iShares MSCI USA Momentum ETF (website) MTUM 0.15 123 MTUM
SPDR S&P 1500 Momentum Tilt ETF (website) MMTM 0.12 1,366 MMTM

* As of January 21, 2016.
** Enable browser cookies to view.


  1. According to an AQR white paper The Case for Momentum Investing, momentum stock returns (as reflected in AQR momentum indexes) have performance, volatility, correlation, and risk-adjusted characteristics that suggest the following rationales for investing in momentum stocks:
    • As an alternative, in whole or in part, to growth stocks for growth stock investors;
    • As an addition to a value allocation, since the addition of momentum stocks to the portfolio reduces tracking error to the market;
    • As an alternative to growth stocks in the allocations of value/growth investors, or investors in core market indexes.
    Caveats regarding momentum strategies include the following:
    • A momentum index will not always track the market index, so there will be periods where momentum will lag the market;
    • Turnover costs when implementing momentum strategies will reduce returns;
    • Momentum returns, based on both rising and falling stock prices, can only be partially attained by a long-only index.
    Annual premium (1927 - 2011)
    Market Size Value Momentum
    Average Premium 7.78% 3.15% 4.18% 8.55%
    Volatility 20.26% 12.87% 12.63% 16.05%
    T-stat 3.5 2.3 3.4 4.9

    Over the 1927 - 2011 period momentum stocks were negatively correlated to the other factors. The 1927 - 2011 correlations between the momentum factor and the other three equity factors:

    Momentum factor
    Factor Correlation
    Market -0.20
    Value -0.24
    Size -0.25
  2. AQR Capital Management, an investment management firm based in Greenwich, Connecticut, has devised momentum indexes calculated and maintained by Standard & Poors. AQR indexes both U.S. and international stocks, and provides the following indexes Momentum Overview, AQR:
    • AQR Momentum Index (Large Cap and Mid Cap U.S. Equities): The AQR Momentum index selects stocks from the 1000 largest U.S. stocks by market capitalization.
    • AQR Small Cap Momentum Index (Small Cap U.S. Equities): The AQR Small Cap Momentum Index selects stocks from 2000 stocks by market capitalization after the 1000 largest U.S. stocks.
    • AQR International Momentum Index (Non-U.S. Equities): The AQR International Momentum Index selects stocks from the top 85% of stocks by market capitalization of each of the 19 major developed markets outside the U.S.
    Each index is calculated according to the following methodology.
    • All the stocks in the investment universe are ranked by the total return over the prior 12 months excluding the last one.
    • The top 33% stocks with the highest momentum rank are selected for inclusion.
    • The selected stocks are weighted by market capitalization.
    The AQR indexes are reconstituted quarterly. See AQR Index Methodology
  3. MSCI provides a limited number of factor indexes tracking momentum designed for institutional investors. However, iShares has an exchange-traded fund (ETF) based on a new index, the MSCI US Momentum Index, which holds between 100 to 150 high momentum stocks, derived from the MSCI USA Index, which represents US large cap and US mid cap stocks.
  4. S&P provides a momentum tilt index that tracks the S&P Composite 1500 Index. The S&P 1500 Positive Momentum Tilt Index over weighs stocks with relatively strong momentum and under weighs stocks with relatively weak momentum. The index methodology can be summarized as follows:
    • Each stock in the S&P Composite 1500 Index is ranked in order of momentum based on price performance over the 11 months ending one month before the index rebalancing date.
    • S&P forms 20 sub-portfolios of approximately equal market capitalization, grouped by momentum.
    • S&P defines a sub-portfolio allocation factor so that a sub-portfolio with relatively high momentum will have a higher allocation factor than a sub-portfolio with relatively low momentum.
    • The weight of each stock in the index is proportionate to its market capitalization and to its sub-portfolio allocation factor. See SPDR S&P 1500 Momentum Tilt ETF prospectus, currently available at fund webpage
    The index is rebalanced quarterly.
  5. The Russell-Axioma momentum indexes seek to deliver exposure to stocks with high medium-term momentum. Medium-term momentum is a measure of a stock’s past performance as measured by a stock’s cumulative return over the last 250 trading days, excluding the last 20 trading days. Russell applies by a screening and ranking methodology the output of the Axioma U.S. Equity Medium Horizon Fundamental Factor Risk model to determine momentum. The Russell international momentum index employs the Axioma AX-WW 2.1 World-Wide ex-USA Equity Factor Risk. See Factor exposure indexes - Momentum factor, FTSE-Russell.

    For US momentum indexes, Russell ranks the stocks in the Russell 1000 or Russell 2000 Index by starting with the highest medium-term momentum stock, then adding the next highest medium-term momentum stocks until the selection reaches a total capitalization of 35% of the Russell 1000 or Russell 2000 index. The large cap momentum portfolio consists of up to 200 stocks from Russell 1000 index; the small cap momentum index is made up of up to 400 stocks in the Russell 2000 Index. The respective Russell-Axioma Factor Indexes are the Russell 1000® High Momentum Index (factsheet) and Russell 2000® High Momentum Index (factsheet).

    A similar selection process is used for the Russell Developed ex-US Large Cap High Momentum Index. The resulting portfolio holds up to 400 stocks of the Russell Developed-ex US Large Cap index. The Russell momentum indexes are reconstituted monthly.


  1. Carhart, M. M. (1997). On Persistence in Mutual Fund Performance. The Journal of Finance 52. pp. 57–82. doi:10.1111/j.1540-6261.1997.tb03808.x. JSTOR 2329556.
  2. Jegadeesh, Narasimhan; Titman, Sheridan (1999). Profitability of Momentum Strategies: An Evaluation of Alternative Explanations. NBER Working Paper No. 7159. NBER.
  3. Fama, Eugene; French, Kenneth (2011). Size, Value, and Momentum in International Stock Returns. Fama-Miller Working Paper; Tuck School of Business Working Paper No. 2011-85. SSRN.
  4. Additional spreadsheets:
  5. Source of data: AQR Momentum Indexes, data download.
  6. Source of data: AQR Momentum Indexes, data download.
  7. Source of data;FTSE USA Factor Indices
  8. Source of data: MSCI US Momentum Index Factsheet
  9. Source of data: S&P 1500 Positive Momentum Tilt Index, 5yr chart.
  10. Source of data: US Large Cap High Momentum Index, now listed as the Russell 1000® High Momentum Index and US Small Cap High Momentum Index, now listed as the Russell 2000® High Momentum Index.
  11. See Russell To Close All But One Of Its ETFs, news article, August 19,2012.

See also

External links