What is momentum investing?

Momentum is useful because markets do not always incorporate new information instantly. Trends can persist as investors update expectations gradually, analysts revise forecasts and capital follows improving fundamentals. Momentum investing gives investors a way to benefit from these trends.

Momentum-driven markets can also be cyclical. As shown below, different factors tend to lead in different market environments, with momentum historically associated with expansionary phases in the business cycle.

When factors tend to outperform in the business cycle

Source: BlackRock, as at 31 July 2026. For illustrative purposes only. Australian-listed iShares ticker codes shown for each factor. All exposures except for size (US equity) are developed world ex Australia.

Yes, - as seen in the chart below, momentum has outperformed global equities over 3-, 5- and 10-year periods.³

However it’s important to note that while momentum can be additive to a portfolio over the long term, it is not a low-volatility strategy: investors should expect periods of deviation from the broad market.

Momentum has outperformed broad global equities across 3, 5 and 10 years

Chart shows annualised net returns in AUD to 31 July 2026. Source: MSCI. Past performance is not a reliable indicator of future performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index.

Historically, a modest momentum tilt has increased returns without materially changing the annual volatility of a broad global equity allocation – as the chart below illustrates.

Using the MSCI calendar-year net returns from 2012–2025 and rebalancing annually, a 20% momentum / 80% broad-market blend produced an annualised return of approximately 15.74%, compared with 15.51% for the broad index, while the standard deviation of annual returns moved from approximately 14.86% to 14.91%.⁴

A momentum tilt has historically lifted return with only a modest change in annual volatility

Chart shows illustrative annual-rebalanced blends of MSCI World ex Australia Momentum Index and MSCI World ex Australia Index using MSCI calendar-year net index returns for 2012–2025. Returns are geometric annualised returns; volatility is the standard deviation of calendar-year returns. Hypothetical calculations exclude fees, taxes and transaction costs. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index.

For an investor who already holds a broad developed-market equity core, momentum can be used as a satellite tilt - preserving broad market participation while adding a systematic exposure to prevailing winners.

No - the exposure is designed to move as leadership changes. As at 31 July 2026, information technology was the largest sector in the MSCI World ex Australia Momentum Index at 32.34%, but industrials (14.76%) and financials (14.16%) were also meaningful allocations.⁵

The five largest holdings were Micron Technology, Advanced Micro Devices, Exxon Mobil, ASML and Johnson & Johnson — a mix spanning technology, energy and healthcare.⁶

The iShares MSCI World ex Australia Momentum ETF (IMTM) is designed to track the MSCI World ex Australia Momentum Index before fees and expenses. The fund gives Australian investors a single-trade exposure to developed-market large- and mid-cap companies outside Australia with positive trailing price trends.

• The long-term case – backed by decades of academic research⁷, momentum has been shown to generate excess returns above the broad market in the long term, and provide efficient outperformance as a portfolio tilt.
• The tactical case – As of August 2026, momentum is currently the BlackRock Systematic investment team’s highest conviction investment style, demonstrating supportive signals across the economic regime, fundamentals and market sentiment.⁸

As a cyclical factor, it’s important to remember that momentum can suffer when market leadership changes abruptly and recent winners become laggards – leading to potential sharp reversals.

Significant deviation from the broad market is also to be expected, as momentum is an equity return-seeking strategy, not a defensive factor. Index turnover is another piece for investors to consider, given that momentum by its nature is a high turnover strategy.