The Takeaway
Value and momentum are well-documented factors that have historically been associated with market-beating returns. However, there are often significant differences among indexes that target the same factors. Portfolio construction choices matter.
The Morningstar Target Value and Morningstar Target Momentum indexes offer potent exposure to their targeted factors, while considering investability and quality. This approach has yielded strong long-term performance.
The Morningstar Target Value and Target Momentum indexes are highly complementary. Pairing the Morningstar Target Value and Morningstar Target Momentum indexes together in a portfolio may help reduce the risk of underperformance, diversify risk more broadly, and participate in the upside.
The Morningstar Target Value and Morningstar Target Momentum Indexes were built to deliver potent exposure to their targeted factors, while ensuring investability, with screens for quality and controls to diversify firm- and sector-specific risk. Outside the US, these indexes have delivered strong performance over the past decade, but they carry significant active risk relative to the market. The Morningstar Target Value and Target Momentum Indexes are highly complementary. Pairing them in a portfolio can help investors diversify risk and participate in the upside.
This paper provides a comprehensive overview of the Morningstar Target Value and Morningstar Target Momentum Indexes, exploring their construction, performance drivers, and other data-driven insights.
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