A Framework for Evaluating Momentum Funds (Part 1)

Momentum is fickle. It ebbs and flows across market cycles, sectors, and market-cap strata.

Ben Johnson 17 September, 2020 | 18:56
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While the academic definition of momentum is straightforward, the way it is defined and imple­mented by practitioners is often anything but. A lot happens when momentum descends from the ivory towers of academia and steps into the harsh reality of Wall Street. Long-only constraints, transac­tion costs, and taxes all take a lot of the oomph out of momentum.

Momentum exchange-traded funds take different approaches to portfolio construction, attempting to retain the benefits of the momentum factor in its purest form and address some of its potential drawbacks. Navigating these nuances can be challenging. Having a solid framework for under­standing them is critical.

Selection Universe

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About Author

Ben Johnson  Ben Johnson, CFA is the Director of Passive Fund Research with Morningstar.

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