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Tags: momentum | investing | fund | stocks

WSJ: Momentum Investing Hits the Skids

By    |   Tuesday, 08 July 2014 09:12 AM EDT

Momentum investing, which involves buying stocks that already are rising, was all the rage late last year and earlier this year, but it has lost its luster since March.

Momentum stocks are simply part of the market cycle, riding high for periods and then falling back down for periods, according to The Wall Street Journal.

These stocks often outperform the broader market in the short term, thanks to investor bullishness rather than fundamentals, research shows.

Editor’s Note: Dow Predicted Will Hit 60,000 — Buy These 4 Stocks Now

"The trend is your friend: stocks that are working will continue to work," Todd Rosenbluth, director of exchange-traded fund (ETF) and mutual-fund research at S&P Capital IQ, told The Journal.

But that only works for a while, he says. "Stocks that are showing strong momentum can fall out of favor quickly."

And that's exactly what happened in March, when highflying Internet and biotechnology stocks bit the dust.

Momentum-oriented mutual funds and ETFs are trailing their benchmarks this year, The Journal reports, explaining that a reason for this might be timing.

To invest in momentum stocks, you must act quickly and be nimble. But mutual fund managers and ETF providers rebalance typically every quarter or even semiannually because of trading costs.

"As a result, momentum funds can be left holding yesterday's winning stocks long after the crowd has moved on," The Journal states.

One of the most prominent momentum stocks, Tesla, peaked at $265 Feb. 26 and closed at $219.07 Tuesday.

Christopher Gannatti, associate director of research at WisdomTree Asset Management, notes the cyclical nature of momentum stocks in an article for Investors.com.

"Usually, there comes a time when the 'good story' is no longer enough, and a stock stops trading based on possibilities and potential and starts trading based on the actual business operations," Gannatti explains.

"It's possible that we saw such a shift around March 4, 2014."

Editor’s Note: Dow Predicted Will Hit 60,000 — Buy These 4 Stocks Now

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StreetTalk
Momentum investing, which involves buying stocks that already are rising, was all the rage late last year and earlier this year, but it has lost its luster since March.
momentum, investing, fund, stocks
329
2014-12-08
Tuesday, 08 July 2014 09:12 AM
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