Continue reading...Momentum investing was all the rage in the 1990s when the markets were rising like a hot air balloon. This strategy is based upon the idea of purchasing whatever sector of the market has posted the greatest earnings or price gains in the market over the past year. Many funds, such as American Century Ultra (TWCUX), relied heavily on variations of the momentum strategy during this time and when the tech bubble burst, they went down with it, some harder than others.
But a new group of studies has indicated that momentum investing is actually a viable long-term investment strategy and has performed admirably over longer periods of time.
The Research AQR Capital Management published a white paper in September of 2014 that was titled “Fact, Fiction and Momentum Investing.” This paper analyzed the results of momentum investing over a 100-year period and concluded that “trend following has delivered strong positive returns and realized a low correlation to traditional asset classes...
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