The MSCI Momentum Indexes are a series of indexes created by MSCI Inc. that track the performance of stocks with strong momentum characteristics. Momentum investing is a strategy that aims to capitalize on the continuation of existing trends in stock prices. The MSCI Momentum Indexes provide a systematic approach to capturing this momentum effect in equity markets.
Basics about the MSCI Momentum Indexes:
- Index Construction: The MSCI Momentum Indexes are constructed using a rules-based methodology. The methodology identifies stocks with strong momentum characteristics based on their recent price performance. The index selects stocks that have exhibited positive price momentum over a specified period, typically 6 to 12 months.
- Stock Selection Criteria: The MSCI Momentum Indexes use a combination of price momentum and risk controls to select stocks. The indexes typically consider factors such as relative strength, price acceleration, and volatility. Stocks with higher momentum scores are given greater weight within the index.
- Index Weighting: The MSCI Momentum Indexes employ a modified market capitalization weighting scheme. This means that larger companies generally have a higher weight in the index compared to smaller companies. However, the weightings are adjusted based on the momentum scores of the stocks to ensure that stocks with stronger momentum characteristics have a larger impact on the index’s performance.
- Rebalancing: The MSCI Momentum Indexes are rebalanced periodically to maintain their momentum focus. The rebalancing frequency varies depending on the specific index. Some indexes are rebalanced quarterly, while others may be rebalanced semi-annually or annually. During the rebalancing process, stocks that no longer meet the momentum criteria may be removed from the index, and new stocks that meet the criteria may be added.
- Index Variations: MSCI offers different variations of the Momentum Indexes to cater to specific regional or sector-focused investment strategies. For example, there are MSCI World Momentum Index, MSCI USA Momentum Index, MSCI Emerging Markets Momentum Index, and sector-specific momentum indexes, among others.
- Investment Products: The MSCI Momentum Indexes serve as a basis for various investment products, including index funds, exchange-traded funds (ETFs), and structured products. These investment products aim to provide exposure to the performance of stocks with strong momentum characteristics as captured by the respective MSCI Momentum Index.
