Is Market-Cap Weighting a Momentum Strategy in Disguise?
Yes, sort of, just not the sort of momentum strategy many may think.
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 (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.