Hedge fund firm AQR Capital Management has launched a set of indexes designed to capture the returns of stocks that have positive momentum (see WSJ article). In addition, the firm launched three no-load mutual funds that will track the new momentum indexes. The AQR Momentum Fund, AQR Small Cap Momentum Fund, and AQR International Momentum Fund will track the AQR Momentum, Small Cap Momentum, and International Momentum indexes, respectively.

The new AQR indexes are constructed using the top one-third of stocks that have outperformed other stocks in their grouping over the last 12 months, with the stock weightings based on market capitalization. The large-cap index examines the 1,000 largest U.S. market cap stocks, while the small-cap index will examine the next largest 2,000. The indexes are rebalanced quarterly. The designers of the funds hope that investors will use them to represent the growth portion of their portfolio since momentum-based portfolios tend to do well when value strategies are not in favor. Pure growth strategies also tend to under-perform momentum strategies over time according to a principal at AQR. Nonetheless, each momentum strategy needs to be somewhat specific, making it difficult to do a direct momentum for growth substitution, but could still prove useful for those looking for diversification with their momentum investing.

2 comments

  1. S Benard // July 14, 2009 at 10:48 AM

    I'd like to see an ETF developed for this index.

  2. Bull Bear Trader // July 14, 2009 at 11:58 AM

    If the indexes and mutual funds are even slightly successful, I would not be surprise to see someone run with the idea, given that we seem to see a new index and corresponding ETF just about every day.