Is Market-Cap Weighting a Momentum Strategy in Disguise?
Yes, sort of, just not the sort of momentum strategy many may think.
ETF Specialist
Mentioned: Vanguard Total Stock Market Idx I (VITSX)
, iShares Core S&P 500 ETF (IVV)
, Vanguard Total Stock Market ETF (VTI)
, Apple Inc (AAPL)
A version of this article appeared in the February 2020 issue of Morningstar ETFInvestor. Download a complimentary copy of Morningstar ETFInvestor by visiting the website.
If I had a nickel for every time I’ve heard someone say that market-cap weighting is a momentum strategy because investors in cap-weighted index funds “buy more of the biggest stocks as their price goes up,” I’d be writing a FIRE (Financially Independent Retire Early) lifestyle blog right now. Alas.
Ben Johnson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.