The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).
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Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.
Stocks tend to maintain recent price trends in the future, and the momentum strategy takes advantage of this phenomenon. When usinga momentum strategy, it is important to be aware of the risk of trend reversals and of how that risk can be mitigated.
The momentum premium is one of the largest factor premiums, but it is hard to capture because of two practical problems. First, a substantial drawdown can occur if there is a trend break like a market reversal, as the strategy will select equities with high market sensitivity in a bull market. Second, the group of stocks with the strongest trends changes all the time, causing high turnover in the portfolio. The transaction costs that this turnover generates eat into the momentum premium.
Unlike ‘traditional’ momentum based on total returns, Robeco calculates ‘residual’ momentum, adjusted for market risk in particular. This avoids the unrewarded risks of a traditional momentum strategy. Furthermore, smart portfolio construction rules ensure only necessary trades are done and transaction costs are minimised.