Navigating Sector Momentum: Evaluating Performance in the US and Global ETFs for Retail Investors
Navigating Sector Momentum: Evaluating Performance in the US and Global ETFs for Retail Investors

Summary/Abstract: Modern-day investing comes with numerous options and complexities for non-professional investors. An easy way for them to earn acceptable returns is by investing in market index exchange-traded funds (ETFs). Nonetheless, evidence points to the potential for achieving superior results through a simple sector momentum strategy. This study aims to test whether those results hold when applied to a different dataset and to assess the performance attribution of such a strategy. The analysis is based on two sets of sector ETFs, one focused on the US market and the other on the global market, to explore the applicability of the results in both contexts. For each dataset, performance measures were calculated, and factor analysis was conducted. The findings indicate that sector momentum strategies outperform the benchmark, although no single strategy is universally optimal for every investor or investment opportunity set. Factor analysis confirms that the strategy generates alpha and that its performance cannot be fully explained by traditional factors. Thus, the study reinforces the potential of sector momentum investing, particularly for retail investors, while acknowledging its limitations, such as the exclusion of transaction costs.

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