Authored by Lance Roberts via RealInvestmentAdvice.com,
Ever since 2020, momentum investing has been delivering remarkable returns in comparison to other strategies, attributed to the massive injection of stimulus into the financial system. In 2021, Brett Arends for Marketwatch highlighted the edge that momentum investing can provide, citing various experts. However, is momentum investing always the optimal strategy? This is a question raised in the article “Best Way To Invest:”
The article delves into the concept that while momentum investing may be appealing in a bullish market driven by liquidity, it may not always be the most suitable strategy. The discussion continues by analyzing the performance of various ETF funds over the past few years, focusing on the SPDR S&P 500 ETF (SPY), IShares Momentum ETF (MTUM), and IShares Value ETF (IVE).
One key point highlighted is that momentum investing is not a passive strategy. The article examines how the top holdings of MTUM change in response to market momentum shifts, contrasting it with the stability of SPY’s holdings over the same period.
Another crucial aspect discussed is that while momentum investing has outperformed in recent years, it may not always be a winning strategy. The article emphasizes the importance of adapting investment strategies to different market conditions, citing instances where momentum failed to provide a hedge during specific market events.
Furthermore, the article touches on the return of value investing, suggesting that the rotation from momentum to value is inevitable. It stresses the significance of understanding market cycles and being prepared to adjust investment strategies accordingly.
Ultimately, the article encourages investors to be mindful of the cyclical nature of markets and to consider the potential opportunities presented by shifts in investment approaches.
Key Takeaways:
- Momentum investing has shown strong returns in recent years but may not always be the best strategy.
- Adapting investment strategies to changing market conditions is crucial for long-term success.
- The rotation from momentum to value investing is expected and presents unique opportunities for investors.
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