Value vs momentum strategy: Which works better in bull and bear markets?

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A value strategy means investing in undervalued companies with strong fundamentals that are trading below their intrinsic value and are out of favour from a price perspective. The expectation is that, eventually, these companies will show a strong upward price movement. 

On the other hand, momentum strategy focuses mainly on the upward price trajectory of the companies and invests in those that are currently in high demand and whose prices are expected to increase rapidly.

Over the years, both strategies have complemented each other effectively, especially when applied through the right, true-to-label products. They have performed well across bull and bear markets, helping investors maintain consistency and limit underperformance at the overall portfolio level. 

Also Read: Momentum investing: Why volume and size matter

To find out, we have considered two broad-based smart beta indices: the Nifty 500 Value 50 Index and the Nifty 500 Momentum 50 Index. We have considered 3-, 5- and 10-year daily rolling compound annual growth rate (CAGR) returns since their inception on 14 November 2024. The data clearly shows that momentum strategy has outperformed value strategy 65%, 78% and 97% of the time, displaying better outperformance and consistency, especially on a 10-year rolling returns basis.

Value strategy, on the other hand, has been cyclical and has outperformed in cycles on a 3- and 5-year rolling returns basis.

Let’s look at the average CAGR generated by the two strategies for 3-, 5- and 10-year daily rolling basis. While momentum generated 20%, 19.6% and 20.5%, value investing gave 15.7%, 13.5% and 13.2%.

The data shows momentum strategy has displayed higher average returns, better maximum returns, lower downside, and