US Momentum About

1 Nov 2021
This strategy was developed for investors who want to hold a portfolio of stocks that have had recent strong share price performance. Research has shown that stocks with strong price performance over the prior year tend to continue performing well.


The US Momentum Strategy sources stocks from either the S&P100 or Nasdaq100 indices, which contain the largest capitalization stocks from the New York Stock Exchange (NYSE) and Nasdaq. By searching this universe for stocks that have risen the most over the prior 6 to 12 months, we are banking on the previous momentum persisting for a good proportion of the chosen stocks.

Of course, not all trades will be winners, but according to the back-testing, the strategy closes approximately 55% of trades with a profit and produces an average return of 18.6% for these trades. On the other side, the average loss per losing trade is only -8.5%. These statistics show why the strategy can produce a market-beating return over the long term, but they also show that it only works when an investor buys the entire portfolio. Picking and choosing individual stocks from this table has a reasonable probability of selecting a losing trade. Similarly, adjusting the portfolio when the strategy re-balances each month is essential to make sure you hold the optimal portfolio of stocks.


The strategy invests in listed US equities that fall within the S&P 500 index. The investment premise is to identify the strongest trending stocks in this universe and hitch a ride on their upward movements. This ‘momentum effect’ has been shown to produce market-beating returns and is based on investor psychology of wanting to own stocks that have performed particularly well in the recent past.



The US Momentum Strategy is designed to be as easy as possible for investors to follow. To follow the US Momentum strategy, investors need to buy the recommended stocks in equal weights. Weights can drift over time as stock prices move, but we only recommend re-balancing stock weights if they stray too far from the target weight (10% per stock). The stock volumes shown in this table are based on a US$5,000 investment per stock which produces a US$50,000 portfolio.

To follow this strategy; the minimum amount that we recommend is $10,000 which requires an allocation of $1,000 per stock.

Once per month, the list of stocks will be updated in what we call a ‘re-balance. This means investors will need to look at the new list and sell any stocks that are no longer on the list. After these stocks are sold, the new stocks from the current table can be bought.



The US Momentum strategy would be classed as a ‘growth’ portfolio and therefore is on the higher end of the risk/return spectrum. Risk is managed in the strategy through an ‘index filter’ that causes the strategy to shift completely to a defensive portfolio if the S&P 500 declines sufficiently. In the back-testing, this protected the portfolio during the Global Financial Crisis although the trade-off is that the filter sometimes activates at times when hindsight would have suggested it shouldn’t have activated.

The US Momentum strategy has been developed and tested by simulating the investment performance over historical stock price data. This allows us to gather performance data based on how this strategy would have performed if we had run them during these prior time periods. The statistics in the table below summarise the results of this testing and compare them to the S&P 500.

Construction Ten of the best quality stocks selected from the S&P 100 and Nasdaq 100 indices Free-float-adjusted market-cap-weighted, comprising 500 of the largest US stocks
Management Rebalanced once per month on the 1st of the month Rebalanced four times per year according to market cap and liquidity
Annual Average Return 18.66% per annum, before fees 9.11% per annum, before fees
Worst 12-month Return 21.67% (Feb-2008 to Feb-2009) -43.3% (Feb-2008 to Feb-2009)

*As at 31 December 2018, based on 15 years of back-tested data



The minimum investment amount for US Momentum Strategy is $10,000. The minimum brokerage amount charged per trade is $15, this would represent a 1.5% charge on a trade size of $1,000 (portfolio size of $10,000 for 10 stocks). If the investment amount increases to $20,000 due to minimum brokerage this charge will automatically decrease to 0.75% of the trade size.


We recommend a time horizon of at least three years for this strategy due to the possibility of a negative return in any given year. Based on the strategy back-testing, the probability of a positive return over any three-year time horizon is 96%, and therefore having an investment time horizon of at least this much maximizes the probability of a positive investing outcome. Investors should know that the strategy back-testing of positive return over any three-year doesn’t guarantee to get the same result in next years

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