Do you know what is Momentum Investing?
1) We may be aware of different kinds of investing like Value Investing, Growth Investing, Top Down Investing, Bottom Up Investing, Large Cap Investing, Mid Cap Investing, Balanced Investing etc.
2)But did you ever hear of Momentum Investing?
3) Momentum investing involves a strategy to make the best of the continuance of or a sustainence of an existing market trend
4) It involves investing in stocks, futures or market ETFs that are expected to show an upward-trend in prices.
5) It also involves going short (making commitments to sell) the respective assets with downward-trending prices.
6)Momentum investing holds that trends can persist for some time, and it ’s possible to profit by staying with a trend until its conclusion, no matter how long that may be.
7) For example, momentum investors that entered the U.S. stock market in 2009 generally enjoyed an uptrend until December 2018.
8)How does Momentum Investing work?
9)Momentum investing usually involves a strict set of rules based on technical indicators that dictate market entry and exit points for particular securities.
10)Momentum investors sometimes use two longer-term moving averages, one a bit shorter than the other, for trading signals.
11) Some use 50-day and 200-day moving averages, for example. The 50-day crossing above the 200-day creates a buy signal as it indicates the recent trend seems to break away from the long term trend.
12) Likewise a 50-day crossing back below the 200-day creates a sell signal.
13) Although this style isn’t very popular in India but as the Indian Market gets matured and integrates with global markets, it is time to introduce best practices as well as Global products to India
14) UTI has just launched this kind of a product and the NFO is on right now
15) The UTI Mutual Fund scheme runs this strategy from within the basket of NIFTY 200
16) The scheme selects 30 momentum stocks from NIFTY 200 to execute the Momentum Investing Strategy
17) Momentum Investing works both in upward moving market as well as downward moving market
18) Since you not likely to have this kind of product in your client’s portfolio basket, you may like to consider this fund so as to add a distinct diversification element into their basket