How to Improve ETF Sector Momentum *

Abstract

In this article, we explore the historical performance of sector momentum strategies and examine how their alpha has diminished over time. By analyzing the underlying causes behind this decline, we identify key factors contributing to the underperformance. Most importantly, we introduce an enhanced approach to sector momentum, demonstrating how this solution significantly improves the performance of an ETF sector momentum strategy, making it once again an effective tool for systematic investors.

Keywords: factor allocation, factor investing, momentum, own-research, sector picking, smart beta, trendfollowing