- The momentum portfolio consists of the top performing 30% of stocks over the prior 12 months (with a skip-month) rebalanced monthly.
- The value portfolio consists of the cheapest 30% of stocks based on price-to-book value, rebalanced annually.
- The buy-and-hold portfolio consists of the largest 30% of stocks based on market capitalization, rebalanced annually.
It is universally acknowledged by practitioners and academics alike that the value and momentum factors are the two most persistent and universal methods of capturing excess returns in markets. This chart illustrates the impact of these two factors on U.S. stocks, but they apply to all markets everywhere.
Source: Kenneth French Data Library. Click image for larger version.