Hulbert: In Praise of Momentum Investing

Monday, 27 Jan 2014 08:46 AM

By Dan Weil

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Momentum investing — going in and out of sector mutual funds to catch those that are currently performing best — did well in 2013 and has a good long-term track record too, says Mark Hulbert, editor of Hulbert Financial Digest.

Nine of the 10 top performing mutual-fund portfolios last year — out of the more than 250 followed by the Digest — utilized such a strategy, he writes in The Wall Street Journal.

Those nine portfolios generated an average return of 41 percent, compared with 32 percent for the Standard & Poor's 500 Index.

Editor’s Note:
250% Gains Bagged Using Secret Calendar (See Video)

As for the long-term, six of the nine high flyers has existed for at least 10 years, and each outperformed the S&P 500 during that period, Hulbert says.

"Of course, not all industry-momentum strategies beat the market. But enough of them do over the long term to warrant a closer look," he writes.

The focus shouldn't be on just one or two top-performing industry funds, James Lowell, editor of an industry-momentum advisory service called Fidelity Sector Investor, tells Hulbert. Such a strategy would be too risky, Lowell explains.

"Diversification is a core principle of any great momentum model," he says.

Hulbert asserts that biotech, computer software, healthcare and retail are the industries currently are favored by most of the top-performing industry-momentum strategists.

When using individual stocks to engage in momentum investing, some work better than others, says Jacob Sagi, professor of finance at the University of North Carolina.

"Momentum, when used as a stock investment strategy, appears to be more prevalent or profitable when it's restricted to smaller firms, growth firms, firms with lower operating leverage, firms with higher sales volatility, firms with lower credit quality," he tells Bankrate.com.

Editor’s Note: 250% Gains Bagged Using Secret Calendar (See Video)

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