If you want to watch a movie, how do you decide which one to watch? Well you might go and peep into the recent track record of hit movies or simply watch a movie that comprises of a star cast of actors or director who have been successful in recent times as opposed to watching one where the cast has only delivered flops. Right? That’s called the Momentum Factor.
For better understanding lets see how exactly this investing works .The Momentum Factor can also be seen in the behavior of stocks. Due to this factor, winning stocks have a tendency to continue performing well in the near term. But how do you define Momentum stocks? Well; you can look at the 6 and 12 month returns of stocks to identify momentum stocks. Or easier still look at pre-defined momentum based portfolios like the NIFTY 200 Momentum Index. This Index has not only outperformed the NIFTY 200 benchmark over a period of time but it has also beaten this Index in various market cycles.
There are various funds such as Index Funds and ETFs which are tracking down these indices such as the NIFTY 200 Momentum Index . It helps you to capture the Momentum Factor. By adding of these funds to your core investing portfolio to factor in Momentum in your equity investing strategy. Hence, that’s how momentum factor works.
We hope that you must have now understood the momentum concept, as it is our constant endeavour at Motilal Oswal to educate & make an ‘investor’ a ‘sound investor’! Happy Investing!