Practical Applications of Can a Momentum Strategy Outperform the S&P 500 Index in a Retirement Plan?

Abstract

In Can a Momentum Strategy Outperform the S&P 500 Index in a Retirement Plan?, from The Journal of Retirement, authors Akhtar Lodgher and Syed Harun (both of Texas A&M University-San Antonio) find that over periods of 20 years or longer, a momentum strategy with rebalancing every one to three months and investing in the top 7% to 10% of funds resulted in significant excess returns, net of transaction costs. The authors use data on 289 Fidelity mutual funds and measure the performance of a variety of momentum strategies for the period from 1990 to 2019. Investing for shorter periods, rebalancing less frequently, and investing in fewer funds resulted in lower performance or underperformance. The authors conclude that a carefully crafted, disciplined, and diversified long-term momentum-investing strategy can significantly improve retirement-investing outcomes.