Momentum index returns

Index providers have recently introduced indexes designed to capture the returns of the momentum  factor in stock market returns. Academic research posits momentum According to an AQR white paper The Case for Momentum Investing, momentum stock returns (as reflected in AQR momentum indexes) have performance, volatility, correlation, and risk-adjusted characteristics that suggest the following rationales for investing in momentum stocks:
 * As an alternative, in whole or in part, to growth stocks for growth stock investors;
 * As an addition to a value allocation, since the addition of momentum stocks to the portfolio reduces tracking error to the market;
 * As an alternative to growth stocks in the allocations of value/growth investors, or investors in core market indexes.

Caveats regarding momentum strategies include the following:
 * A momentum index will not always track the market index, so there will be periods where momentum will lag the market;
 * Turnover costs when implementing momentum strategies will reduce returns;
 * Momentum returns, based on both rising and falling stock prices, can only be partially attained by a long-only index.

Over the 1927 - 2011 period momentum stocks were negatively correlated to the other factors. The 1927 - 2011 correlations between the momentum factor and the other three equity factors:

as one of the factors that drive stock market returns:

Index returns
AQR (maintained by S&P),, FTSE, MSCI, S&P, and Russell-Axioma The Russell-Axioma momentum indexes  seek to deliver exposure to stocks with high medium-term momentum. Medium-term momentum is a measure of a stock’s past performance as measured by a stock’s cumulative return over the last 250 trading days, excluding the last 20 trading days. Russell applies by a screening and ranking methodology the output of the Axioma U.S. Equity Medium Horizon Fundamental Factor Risk model to determine momentum. The Russell international momentum index employs the Axioma AX-WW 2.1 World-Wide ex-USA Equity Factor Risk. See Factor exposure indexes - Momentum factor, FTSE-Russell.

For US momentum indexes, Russell ranks the stocks in the Russell 1000 or Russell 2000 Index by starting with the highest medium-term momentum stock, then adding the next highest medium-term momentum stocks until the selection reaches a total capitalization of 35% of the Russell 1000 or Russell 2000 index. The large cap momentum portfolio consists of up to 200 stocks from Russell 1000 index; the small cap momentum index is made up of up to 400 stocks in the Russell 2000 Index. The respective Russell-Axioma Factor Indexes are the Russell 1000® High Momentum Index (factsheet) and Russell 2000® High Momentum Index (factsheet).

A similar selection process is used for the Russell Developed ex-US Large Cap High Momentum Index. The resulting portfolio holds up to 400 stocks of the Russell Developed-ex US Large Cap index.

The Russell momentum indexes are reconstituted monthly. provide momentum indexes.

The following tables provides return and standard deviation for the indexes, which benchmark US large cap, US small cap, and developed ex- US markets.

Indexes: AQR Momentum Index; AQR Small Cap Momentum Index; AQR International Momentum Index; FTSE US Momentum Index; MSCI US Momentum Index, Russell 1000® High Momentum Index; Russell 2000® High Momentum Index; Russell Developed ex-US Large Cap High Momentum Index; S&P 1500 Positive Momentum Tilt Index

Investment options
Investors in the U.S. can invest in exchange traded funds based on the MSCI USA Momentum Index and the S&P 1500 Positive Momentum Tilt Index. The table below provides a summary of available offerings. Russell brought to market ETFs tracking the firm's volatility, beta, and momentum indexes in 2011, but subsequently closed them in October, 2012, due to low asset accumulation.

Methodology

 * AQR Momentum Index Methodology, AQR. Describes the methodology for two of the U.S. indices: the AQR Momentum Index and the AQR Small Cap Momentum Index. Viewed January 19, 2016.
 * AQR International Momentum Index Methodology, AQR. Describes the methodology for the AQR International Equity index. Viewed January 19, 2016.
 * MSCI Momentum Indexes Methodology, December 2013.
 * MSCI Factor Indices Methodology, May 2012.
 * Russell-Axioma Factor Index Series (Long-only), Construction methodology, January 2014.
 * S&P 1500 Positive Momentum Tilt Index, select methodology download.

Articles

 * How the Four Stock Premiums Work, Larry Swedroe, Marketwatch, April 16, 2012. Retrieved 1 February 2013.
 * The Case for Momentum Investing, AQR white paper.