World vs. world momentum

Facts, figures and data (as at 06/2024)

It is often claimed on getquin or by self-proclaimed finfluencers that the World Momentum strategy would beat a world index. The problem with this is that the claims are usually not substantiated. And when they are "substantiated", they usually compare an MSCI World ETF with an MSCI World Momentum ETF that has only been around for 10 years. And as we all know, 10 years on the stock market is too short a period for an appropriate comparison.

Although it would be so easy.

After all, the MSCI World Momentum Index was launched back in 1994. So there are good comparative values for the last 30 years, during which the index has been able to prove itself in many boom and crash phases (dot com bubble, financial crisis, corona). And they are also neatly prepared by MSCI itself [1].

Stop talking, I'm here for the numbers!

All right. Here are the average annual returns of the MSCI World Index and MSCI World Momentum Index over the last X years:

5 years, World: 13.31%, Momentum: 13.73%

10 years, World: 9.71%, Momentum: 12.26%

30 years, World: 8.32%, Momentum: 11.26%

I suck at math. Impress me with absolute numbers!

If you invested USD 10,000 in the MSCI World 30 years ago, today it has become USD 109,966.28. If you had opted for the MSCI World Momentum Index instead, you would now have USD 245,567.94 😳. More than twice as much.

That is indeed impressive. What's the catch? Gigantic risk?

The max drawdown for the world over the last 30 years is 57.46%, that of momentum 55.53%. The Sharpe ratio is 0.43 for the World and 0.59 for Momentum. You can find further comparative values at [1].

And now? Sell everything and switch to momentum?

As you know, historical data is no guarantee of future performance. Moreover, although 30 years is more than 10, it is still a relatively short comparison period. I would therefore not bet 100% on the World Momentum. Despite existing studies that claim that the momentum strategy would have beaten a world index even over the last 80 years.

However, I can very well imagine a World Momentum ETF as a satellite or even as a core with satellites.

And you?

Sources (the fact sheet is constantly updated, this article is not)

[1] https://www.msci.com/www/fact-sheet/msci-world-momentum-index/010603830

Want to know how the World Index compares to the World Quality Index? Then take a look here https://getqu.in/HhbBYl/

A comparison with the MSCI World Value Index and a summary of World vs Momentum vs Quality vs Value can be found here: https://getqu.in/TD3OT2/

The MSCI World Momentum Index is tracked, for example, by $XDEM (+0,53 %) for example.