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ETF Specialist

A Promising Value and Momentum Small-Cap Strategy

This fund has a good chance to beat the broad U.S. small-cap market over the long term.

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On the surface, value and momentum may seem like contradictory strategies. Value is about buying unloved securities, those that have been overlooked or shunned. Momentum seems like quite the opposite: aggressively chasing hot areas of the market with strong recent performance. But these concepts don’t conflict at all; they might even be two sides of the same coin.

Value is a long-term effect, while momentum is short term. Investors may initially under-react to new information, causing prices to adjust more slowly than they should, giving rise to momentum. However, as investors jump on the bandwagon, prices can overshoot fair value. This may lead to the long-term performance reversals associated with the value effect.

Alex Bryan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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