Momentum Is Still 2025's Top Performer For Equity Risk Factors

The momentum equity factor has emerged as the leading performer among equity risk factors year-to-date through July 9, consistently outperforming the broader US stock market and other factors. This robust performance, evidenced by ETF data, highlights its resilience and strong returns amidst prevailing economic volatility.

Analysis

The momentum factor has established itself as the leading equity risk factor on a year-to-date basis through July 9, outperforming both its factor peers and the broader US stock market. This analysis, based on a set of exchange-traded funds including the iShares MSCI USA Momentum Factor ETF (MTUM), highlights the factor's robust performance amidst a volatile economic environment. Despite its top-tier returns, momentum is not insulated from market-wide shocks. Notably, during the 'April tariff tantrum,' MTUM experienced a significant drawdown that was in line with the overall market, underscoring its vulnerability during periods of acute risk-off sentiment. This dynamic presents a dual narrative: persistent leadership in the current market cycle, yet a high correlation to broad market declines during stress events.

Key Decisions for Investors

• Given its demonstrated leadership year-to-date, investors could consider maintaining or adding exposure to the momentum factor to capitalize on prevailing market trends.
• It is critical to recognize that momentum strategies, as evidenced by MTUM's performance during the April downturn, do not offer a hedge against broad market sell-offs and can exhibit high beta during risk-off events.
• Investors should closely monitor macroeconomic news and geopolitical developments, such as trade and tariff disputes, as these have been shown to be catalysts for sharp, market-wide drawdowns that can abruptly halt momentum's outperformance.