Medium-Term Momentum

I hope you've been having a great summer. While factor movement has been relatively quiet this season, we're now seeing the emergence of signal for Medium-Term Momentum factor in both the US and Global models. Usually, when we see this type of movement in both models, it makes for a much stronger signal.

The last time we discussed Momentum on July 12th, we had flagged it as "Oversold" as it was -1.49 standard deviations below the mean on a normalized basis. Since then, the factor has seen a significant run-up in both the cumulative and normalized charts of our Factor Profile.

As a reminder, we define Medium-Term Momentum as cumulative return over the past 12 months excluding the most recent month.

US Model

As you can see, the rally in the US has been pretty non-stop, save for a slight brake in early August. The factor is +1.97% on a cumulative basis since July 12th, and currently sitting +1.5 standard deviations above the mean in the normalized chart.

‍Global Model

Here, we can see a similar pattern, with the factor hitting a trough on August 7th of -1.41 SD below the mean, and then enjoying a nearly vertical rally to +1.62 SD above the mean today.

The sectors that are currently most correlated with Medium-Term Momentum in both models continue to be Software, IT, and Semiconductors.

We'll continue to track this factor as it continues this sharp trajectory and will provide an update when we start seeing an inflection point that suggests a reversion to the mean for Momentum.

If you'd like to see what Medium-Term Momentum or any other factors look like in your portfolio's performance and risk profile, or would like to better understand how we measure the relationships between factors, please don't hesitate to reach out.

Regards,
Omer