The Takeaway
Momentum is one of several well-documented investment factors that have historically been associated with market-beating returns. There is strong economic rationale, rooted in investor behavior, that suggests it will likely persist in the future.
The Morningstar Brazil Target Momentum Index aims to represent potent exposure to momentum, while considering investability and quality.
Pairing this strategy with a core equity allocation can reduce risk, while still providing potential outperformance when momentum is in favor.
Momentum is one of the most pervasive effects in financial markets. It’s based on the premise that recent market-relative performance tends to persist in the short-term. The momentum factor is compelling on paper, but many strategies that attempt to harness momentum look and perform quite differently from one another.
The Morningstar Brazil Target Momentum Index is designed to address the practical challenges of implementing a momentum strategy in the Brazil equity market. It targets Brazilian stocks with strong price performance as well as strong and improving earnings. Crafted for investability, the index takes steps to diversify firm- and sector-specific risk and limit unnecessary turnover.
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