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Momentum Investing Screens

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Tiny Titans

James O'Shaughnessy Tiny Titans is a small-cap momentum investing strategy set out by US fund manager James O'Shaughnessy in his 1996 book, What Works on Wall Street. It combines momentum and value factors and focuses on stocks capitalised at greater than £15m but less than £150m. Its key measures include the price to sales ratio and 1-year relative strength. O'Shaughnessy wrote: "Studies are nearly unanimous in their findings that small stocks (those in the lowest two deciles) do significantly better than large ones. We too have found tremendous returns from tiny stocks." He found that this strategy produced an annual compound return of 20.05% between 1963 and 2009. In 2012, O'Shaughnessy updated the strategy rules by replacing price-to-sales as the key value metric with 6 composited value factors. more »

Momentum Investing
5 Year Return: 213.3%
Earnings Surprise Screen

Earnings Surprise Momentum is a momentum investing strategy that was identified in research by academics Narasimhan Jegadeesh and Joshua Livnat in their paper, Revenue Surprises and Stock Returns. It specifically looks for companies that managed to significantly beat earnings and sales forecasts in their previous financial results. These 'earnings surprises' have been found to cause medium term increases in share prices. This is believed to be caused by analysts being slow to revise their forecasts and the market failing to adequately 'price-in' the better than expected results. Jegadeesh and Livnat found that the the top 20% of stocks in terms of upside earnings and sales surprises outperformed the market by 5.3%. They wrote: "Although analysts revise their forecasts of future earnings in response to revenue surprises, they are slow to incorporate fully the information in revenue surprises." more »

Momentum Investing
5 Year Return: 159.4%
Price Momentum Screen

Price Momentum is a momentum investing strategy first credited to research by academics Narasimhan Jegadeesh and Sheridan Titman in their paper, Returns to buying winners and selling losers. As its core measure it looks for the top 25% of stocks in the market ranked by their relative price strength over six and 12 months. Research into momentum strategies has shown that previously winning stocks have a tendency to keep rising in price over the medium term, while previous losers tend to keep falling. Academics and professionals have credited this anomaly to investors being slow to absorb the implications of positive news about stocks, which causes prices to drift up over time. In their 1993 paper, Jegadeesh and Titman wrote: "The strategy we examine in most detail, which selects stocks based on their past 6-month returns and holds them for 6 months, realises a compounded excess return of 12.01% per year on average." more »

Momentum Investing
5 Year Return: 127.9%
Josef Lakonishok Momentum Screen

Josef Lakonishok Momentum is a strategy that uses price and earnings momentum to identify undervalued companies just at the point when the market is starting to recognise them. It is inspired by detailed research by academic and fund manager Josef Lakonishok, who co-wrote the paper Contrarian Investment, Extrapolation, and Risk. The strategy combines value and momentum factors, including the price-to-earnings ratio, relative strength and earnings surprises. Lakonishok wrote: "Regardless of the reason, some investors get overly excited about stocks that have done very well in the past and buy them up, so that these 'glamour' stocks become overpriced. Similarly, they overreact to stocks that have done very badly, oversell them, and these out-of-favour 'value' stocks become underpriced." A Lakonishok-inspired strategy tracked by the American Association of Individual Investors returned 13.9% in the 10 years to the end of 2014, versus 5.4% for the S&P 500. more »

Momentum Investing
5 Year Return: 126.0%
Value Momentum Screen

Value & Momentum is a strategy that aims to find undervalued stocks with positive price momentum. It is inspired by research by AQR Capital Management as well as the American Association of Individual Investors' "Value on the Move" screen and Jack Hough's "Impatient Value" screen in his book, Your Next Great Stock. The strategy combines value and momentum, which are two disciplines that have been found to work very effectively when combined. It looks for a reasonably low PEG, positive relative strength and a share price within 10% of its 52-week high in companies with sales of more than £100 million. Value and momentum not only provide strong returns but are also negatively correlated. That means that when when one strategy works well, the other lags - one zigs when the other zags. Over time, this helps to create a smoother profit line, as the volatility of each strategy cancels the other out. more »

Momentum Investing
5 Year Return: 124.1%
Richard Driehaus Screen

Richard Driehaus Momentum is a momentum investing strategy inspired by an approach used by US investor Richard Driehaus. It combines a focus on price and earnings momentum in small and mid-cap companies with strong, sustained earnings growth. Importantly, Driehaus wanted to find companies that had produced significant earnings surprises over the previous year by beating analyst forecasts. Driehaus said: "I would much rather invest in a stock that's increasing in price and take the risk that it may begin to decline than invest in a stock that's already in a decline and try to guess when it will turn around." Driehaus's fund management firm Driehaus Capital Management was reported to have delivered compound annual returns of 30% during the 12 years after it was started in 1980. Driehaus was named in Barron's "All-Century" team of the 25 most influential and powerful mutual fund managers in 2000. more »

Momentum Investing
5 Year Return: 101.2%
52 Week High Momentum Screen

52 Week High Momentum is momentum strategy that was explored in a paper called The 52-Week High and Momentum Investing by academics Thomas George and Chuan-Yang Hwang. It capitalises on the positive momentum effect which appears to cause stocks that are at, or close to, their 52 week high prices continuing to outperform. It is believed to work because investors tend to under-react to positive news about previously successful stocks and are reluctant to bid their prices higher, even if the positive news warrants it. When the full impact of the information prevails, and the 52 week high is broken, the market "wakes up" and prices see further gains. George and Hwang wrote: "Our results indicate that the 52-week measure has predictive power whether or not individual stocks have had extreme past returns. This suggests that price level is important, and is consistent with an anchor-and-adjust bias." The original research found that, between 1963 - 2001, the average monthly gain to this strategy assuming a 6 month hold was 0.45% - "about twice as large as those associated with other momentum strategies". more »

Momentum Investing
5 Year Return: 76.0%
Earnings Upgrade Momentum Screen

Earnings Forecast Upgrades is a momentum strategy set out by US academics Phillip McKnight and Steven Todd in research that examined how analyst forecasts affect share prices. It focuses on finding momentum stocks by highlighting those that are receiving the highest levels of upgraded earnings forecasts from analysts. It looks at both the number of analysts that have raised their forecasts on a share over the past month, and the overall percentage earnings-per-share increase among the consensus of analysts. McKnight and Todd claimed: "Stocks with the greatest number of upwards revisions in earnings, net of downward revisions, earn significantly higher returns than otherwise similar stocks." The researchers examined a portfolio of European shares and found that the 20% with the highest net upward revisions outperformed the lowest 20% by over 16% a year. Earnings upgrades are one way of finding stocks with 'earnings momentum'; those that have received upward earnings revisions are likely to do so again in the future. more »

Momentum Investing
5 Year Return: 61.6%
Bold Earnings Revisions Screen

Bold Earnings Revisions is a momentum strategy that aims to spot the hidden signals in analyst forecasts, which has been documented in research and explored further by Jack Hough in his book Your Next Great Stock. Specifically, it captures the 'earnings momentum' in shares where an analyst has recently made a bold upward change to their earnings forecasts. The strategy identifies stocks that have received an earnings forecast upgrade during the past month. It's then possible to scrutinise the list to determine whether the analyst is moving towards the consensus of analysts or away from it. Jack Hough says: "Keep in mind that the size of an estimate revision isn't what makes it bold. Rather, what matters is whether it moves away from the herd." Singling out one just one analyst upgrade won't tell you whether that analyst is moving away from the consensus or towards it. So check the list carefully. more »

Momentum Investing
5 Year Return: 47.9%
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