Momentum investing naturally results in higher portfolio turnover than traditional buy-and-hold strategies, which often invites concerns about the impact of trading costs and taxes on overall returns. This research summary, along with our recent paper, Momentum and Trading Costs, provides compelling evidence that these costs need not erode the momentum premium.
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Momentum Library
Momentum and Tax Efficiency
Momentum investing naturally results in higher portfolio turnover than traditional buy-and-hold strategies, which often invites concerns about the impact of trading costs and taxes on overall returns. This research summary, along with our recent paper, Momentum and Trading Costs, provides compelling evidence that these costs need not erode the momentum premium.
Momentum and Trading Costs
Momentum strategies inherently involve frequent trading, raising questions about the potential erosion of alpha due to implementation costs. This paper explores the relationship between momentum investing and trading costs by examining the sources and measurement of these costs, reviewing pertinent academic literature, discussing practical implementation solutions, and providing our own evidence supporting the survival of the momentum premium despite trading costs.
Momentum & Quality
Academic research, including our own, has shown that momentum and quality factors have generated positive excess returns above an equity market portfolio. This paper looks at the relationship between long-only momentum and quality across different sub-segments of global equity markets. We also share insight on what is an ‘optimal’ mix of momentum, quality, value, and growth within each market.
Insights
Momentum has let off some steam this quarter
Relative to history, the scale of the pullback looks typical, yet happened at a quicker pace than most. However, coming out of these corrections, momentum typically performs well.
Rethinking Emerging Markets
Emerging markets have significantly lagged among global equities in the last several years. However, viewing the asset class through a wider lens, we see a very different picture. In this paper, we shine light on three key reasons to consider an allocation to emerging markets small cap to offset unintended risks and improve outcomes in a global portfolio.
Where do we go from here?
According to Axioma, the momentum factor just posted one of its best quarters on record in Q1 2024 in global equity markets.