Momentum PortfoliosRanked by Performance

Momentum portfolios rotate into assets that have recently outperformed and out of those that have underperformed, based on the well-documented observation that relative price strength tends to persist over intermediate time horizons of three to twelve months. The strategy exploits a market anomaly: winners continue to win, at least for a while. Momentum is one of the most robustly replicated factors in academic finance, observed across asset classes, geographies, and time periods.

Momentum investing requires discipline and systematic execution. Because momentum portfolios hold whatever has been working recently, they can experience sharp reversals when market leadership changes suddenly -- a phenomenon sometimes called a "momentum crash." Most rules-based momentum systems include risk controls, such as moving to cash or bonds during broad market downturns, to manage this tail risk and improve risk-adjusted returns.