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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 (+1,27 %) for example.

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41 Comentarios

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Great!
Great content, great writing. 👏

Röhl and Kramer also addressed this in one of the last EchtgeldTV programs (along with other factors) -> also quite informative.

Greetings
🥪
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I will now sell everything and put it in the Momentum ;)
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Always these pointless comparisons, there will always be some comparison in which his own preferred candidate or surprisingly the other (to push the "newcomer") performs better. Example: I compare the godlike super-duper-MCSI-World-ETF with the bäh-pfui-gruesomely-overpriced-Deka-GlobalChampions-Fonds.
Performance:
1 year: World: 22.10%, Deka: 25.21%
5 years: World: 87.6%, Deka: 90.69%
10 years: World: 208.26%, Deka: 212.33%
Vola 10 years: World: 13.78%, Deka: 13.43%
Sharpe 10 years: World: +0.85, Deka: +0.87
max Drawdown (5Y) : World -33%, Deka: -27.02%

According to all selected comparisons, the Deka is slightly more perfomant with less vola, less drawdown and better Sharpe. Interestingly, however, everyone adores the World ETF and a thousand pseudo-evidences from the world of statistics are unpacked again, because a real fund, even from a savings bank, must be worse. ETFs and funds are like shares: check, if convinced buy, leave. The constant comparison with possibly even better values and trading back and forth usually only costs time without added value.
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Your text was really difficult for me to read, because I had to watch Patrick and Spongebob think and I was rooting for them. Tight box.
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This month I have started to move a little towards factors. Included in my etfs: 15% momentum, 15% quality, 15% value msci world. I find momentum very fascinating.
You just have to be aware of the risk that it is currently basing its growth heavily on tech. NVIDIA is much bigger than $IWDA;8.7% vs 4.93% to name one example. After all, it doesn't magically get bigger. If there is a sudden drop after such a rise, it will fall more sharply.

As a yield booster or in a factor strategy, I definitely think it's great!
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But if you now look at a short time horizon, outperformance is no longer discernible.... 3 year: 11.88 % / 11.10 $ ; 5 years: 13.89% / 13.38% ; But of course it becomes clearer and in the current year, if a trend lasts longer, then momentum can of course score points.... But if trends are short or not clear, then it looks different.
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Yes, and why should you still rely on the ACWI as a core? It is somehow taken for granted...
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Very good article, but I was already aware of it because I've already seen the video about it from Timo :) Nevertheless, the overall figures are absolutely impressive. I'm going to open a position if the prices slip.... then it's a good time to get into the momentum. Currently it has already made + 31% this year, absolutely gigantic. I always ask myself how it will perform if the momentum is not clear.... i.e. currently tech, then it was pharma etc.... It always takes a few months to react to a trend!
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Wow, that's impressive! Then I'll probably save in this instead of my World in the future!
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$IS3R is my largest position in the portfolio and has four-digit monthly savings 👍
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