Momentum Investing

“Simple Term Structure ETF/Mutual Fund Momentum Strategy” tests a simple relative momentum strategy on the term structure of U.S. Treasuries using exchange-traded fund (ETF) and mutual fund proxies. Here, we update and extend that analysis with the following seven ETFs:

State Street SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)
iShares 1-3 Year Treasury Bond ETF (SHY)
Vanguard Short-Term Inflation-Protected Securities Index ETF (VTIP)
iShares 3-7 Year Treasury Bond ETF (IEI)
iShares 7-10 Year Treasury Bond ETF (IEF)
iShares TIPS Bond ETF (TIP)
iShares 20+ Year Treasury Bond ETF (TLT)

We allocate all funds at the end of each month to the one ETF with the highest total return over a specified ranking (lookback) interval, ranging from one month to 12 months. We start the test in July 2002 and add ETFs as they become available. To accommodate the longest lookback interval, portfolio formation commences 12 months after the start of the sample. We focus on compound annual growth rate (CAGR) and maximum drawdown (MaxDD) as key performance metrics. Using monthly dividend-adjusted closing prices for the seven ETFs as they become available through February 2026, we find that: Keep Reading

A subscriber suggested adding a simple moving average (SMA) timing rule to “Top 5 or Top 10 NASDAQ 100 Momentum Stocks?” in order to suppress relatively deep maximum drawdowns (MaxDD). To investigate, we consider SMAs for Invesco QQQ Trust (QQQ) ranging from two months to 24 months. We then hold Top 5 or Top 10 (3-month U.S. Treasury bills, T-bills) when prior-month QQQ is above (below) its SMA. As key performance metrics, we use gross compound annual growth rate (CAGR), MaxDD and Sharpe ratio with average monthly yield on T-bills during a year as the risk-free rate for that year. Using monthly Top 5 and Top 10 portfolio returns and T-bill yields since January 2008 and end-of-month dividend-adjusted QQQ prices since February 2006, all through January 2026, we find that: Keep Reading

A subscriber asked whether more granularity in international equity choices for the “Simple Asset Class ETF Momentum Strategy” (SACEMS) would improve performance. To investigate, we augment/replace international developed and emerging equity market exchange-traded funds (ETF) such that the universe of assets becomes:

• SPDR S&P 500 (SPY)
• iShares Russell 2000 Index (IWM)
• iShares Europe (IEV)
• iShares MSCI Japan (EWJ)
• iShares MSCI Pacific ex Japan (EPP)
• iShares MSCI Emerging Markets Index (EEM)
• iShares JPMorgan Emerging Markets Bond Fund (EMB)
• iShares Latin America 40 (ILF)
• iShares Barclays 20+ Year Treasury Bond (TLT)
• Vanguard REIT ETF (VNQ)
• SPDR Gold Shares (GLD)
• Invesco DB Commodity Index Tracking (DBC)
• 3-month Treasury bills (Cash)

We compare original (SACEMS Base) and modified (SACEMS Granular), each month picking winners from their respective sets of ETFs based on total returns over a fixed lookback interval. We focus on gross compound annual growth rate (CAGR), maximum drawdown (MaxDD) and gross annual Sharpe ratio (average annual excess return divided by standard deviation of annual excess returns, using average monthly T-bill yield during a year to calculate excess returns) as key performance statistics for the Top 1, equally weighted (EW) Top 2 and EW Top 3 portfolios of monthly winners. Using monthly total (dividend-adjusted) returns for the specified assets during February 2006 through February 2026, we find that: Keep Reading

“Beat the Market with Hot-Anomaly Switching?” concludes that “a trader who periodically switches to the hottest known anomaly based on a rolling window of past performance may be able to beat the market. Anomalies appear to have their own kind of momentum.” Does momentum therefore work for style-based exchange-traded funds (ETF)? To investigate, we apply a simple momentum strategy to the following six ETFs:

iShares Russell 1000 Value Index (IWD) – large capitalization value stocks.
iShares Russell 1000 Growth Index (IWF) – large capitalization growth stocks.
iShares Russell Midcap Value Index (IWS) – mid-capitalization value stocks.
iShares Russell Midcap Growth Index (IWP) – mid-capitalization growth stocks.
iShares Russell 2000 Value Index (IWN) – small capitalization value stocks.
iShares Russell 2000 Growth Index (IWO) – small capitalization growth stocks.

We test a simple Top 1 strategy that allocates all funds each month to the style ETF with the highest total return over a specified momentum ranking (lookback) interval. As benchmarks, we consider an equal-weighted and monthly rebalanced combination of all six style ETFs (EW All), and buying and holding SPDR S&P 500 (SPY). As an enhancement, we consider holding the Top 1 style ETF (3-month U.S. Treasury bills, T-bills) when the S&P 500 Index is above (below) its 10-month simple moving average at the end of the prior month (Top 1:SMA10), with a benchmark substituting SPY for Top 1 (SPY:SMA10). Using monthly dividend-adjusted closing prices for the six style ETFs and SPY, monthly levels of the S&P 500 Index and monthly yields for T-bills during August 2001 (limited by IWS and IWP) through January 2026, we find that:

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“Simple Sector ETF Momentum Strategy” investigates performances of simple momentum strategies for the following nine sector exchange-traded funds (ETF) executed with Standard & Poor’s Depository Receipts (SPDR):

Materials Select Sector SPDR (XLB)
Energy Select Sector SPDR (XLE)
Financial Select Sector SPDR (XLF)
Industrial Select Sector SPDR (XLI)
Technology Select Sector SPDR (XLK)
Consumer Staples Select Sector SPDR (XLP)
Utilities Select Sector SPDR (XLU)
Health Care Select Sector SPDR (XLV)
Consumer Discretionary Select SPDR (XLY)

Here, we revisit this strategy and extend it by adding equal-weighted (EW) combinations of the top two and top three sector ETFs, along with robustness tests and benchmarks. Using monthly dividend-adjusted closing prices for the sector ETFs and SPDR S&P 500 ETF Trust (SPY), 3-month U.S. Treasury bill (T-bill) yield and S&P 500 Index level during December 1998 through January 2026, we find that: Keep Reading

“Big 10 Effect?” looks at recent performance of a portfolio that annually picks the 10 NASDAQ stocks with the largest market capitalizations. One reason these firms get big is high past returns. Does a simple momentum strategy, suggested by a subscriber, that at the end of each month picks the Top 5 or Top 10 NASDAQ 100 stocks based on returns over the last 12 months (winners) refine this effect? To investigate, we enlist Claude to retrieve and process data as specified to compute Top 5 and Top 10 monthly returns. We then use the monthly returns to compute gross compound annual growth rates (CAGR), maximum drawdowns (MaxDD) and annual Sharpe ratios, with average monthly yield on 3-month Treasury bills during a year as the risk-free rate for that year. We use buy-and-hold Invesco QQQ Trust (QQQ) as a benchmark. Via publicly available sources, Claude is able to backtest this strategy as far back as January 2008, with initial monthly returns in February 2008. Using Claude outputs, we find that: Keep Reading

We have updated monthly allocations and performance data for the Simple Asset Class ETF Momentum Strategy (SACEMS) and the Simple Asset Class ETF Value Strategy (SACEVS). We have also updated performance data for the Combined Value-Momentum Strategy.

We have updated the Trading Calendar to incorporate data for February 2026.

The home page, Simple Asset Class ETF Momentum Strategy (SACEMS) and Simple Asset Class ETF Value Strategy (SACEVS) now show preliminary positions for March 2026. SACEMS rankings for positions 2 and 3 are somewhat close, so they could flip by the close. SACEVS allocations are unlikely to change by the close.

A subscriber suggested that the Simple Asset Class ETF Value Strategy (SACEVS) and the Simple Asset Class ETF Momentum Strategy (SACEMS) may each exhibit return momentum at the strategy level, such that an investor considering both as in Combined Value-Momentum Strategy may want to pick the one with a stronger recent return. To investigate, we test a SACEVS Best Value-SACEMS Equal-Weighted (EW) Top 2 combination strategy that each month picks the strategy with the higher return over a specified lookback interval (SACEVS-SACEMS Momentum). We consider lookback intervals of 1 to 12 months. We use monthly rebalanced 50% SACEVS Best Value-50% SACEMS EW Top 2 (SACEVS-SACEMS 50-50) as a benchmark. We focus on gross compound annual growth rate (CAGR) and maximum drawdown (MaxDD) as key performance metrics. Using SACEVS Best Value and SACEMS EW Top 2 gross monthly returns during July 2006 (limited by SACEMS) through January 2026, we find that:

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Does adding a position take-profit (stop-gain) rule improve the performance of the “Simple Asset Class ETF Momentum Strategy” (SACEMS) by harvesting some upside volatility? SACEMS each months picks winners from among the a set of eight asset class exchange-traded fund (ETF) proxies plus cash based on past returns over a specified interval. To investigate the value of stop-gains, we augment SACEMS with a simple rule that: (1) exits to Cash from any current winner ETF when its intra-month return rises above a specified threshold; and, (2) re-sets positions per winners at the end of the month. We focus on gross compound annual growth rate (CAGR) and gross maximum drawdown (MaxDD) as key performance statistics for the Top 1, equally weighted (EW) Top 2 and EW Top 3 portfolios of monthly winners. Using monthly total (dividend-adjusted) returns and intra-month maximum returns for the specified assets during February 2006 through January 2026, we find that: Keep Reading