2 Vanguard ETFs Beating the S&P 500 With a Momentum-Driven Strategy
Yahoo Finance ·
Momentum investing -- the general idea that you should let your winners run -- is a popular strategy on Wall Street. In fact, multiple studies, including the well-known Eugene Fama and Kenneth French study, have found that there is the potential to capture higher returns by following a momentum strategy. Vanguard is much more well-known for its lineup of broad, ultra-low-fee index funds, but it does actually have a pair of ETFs that incorporate the momentum factor into their strategies. They fly under the radar because they don't necessarily fit the Vanguard stereotype. But they've been around for more than eight years, and they have a solid track record of beating the S&P 500 . A good momentum strategy follows a well-documented rules-based structure. A lot of the results will depend on the time frames used as part of its lookback period. Most will use somewhere between three and 12 months. Some will use multiple lookback points (such as three months and six months). Either strategy can work, but it generally shouldn't look at periods longer than 12 months. A scored weighting approach, or one that gives higher weightings to those stocks demonstrating stronger momentum, also tends to work better. Market cap-weighted approaches emphasize company size over the momentum factor, which usually diminishes effectiveness. The two Vanguard ETFs meet both of these criteria.
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