Relative Momentum

Relative momentum (also known as cross-sectional momentum) is an investing style that compares the trailing performance of multiple assets against each other and allocates capital to the strongest performer.

The concept of momentum is simple: assets that have performed well in the recent past tend to continue performing well in the near future. Relative momentum applies this across assets. Instead of asking if an asset is going up in absolute terms, it asks: "Which of these assets is going up the fastest?"

In Gary Antonacci's GEM (Global Equity Momentum) strategy, relative momentum is used to choose between US Equities (S&P 500) and International Equities (MSCI ACWI ex-US). By comparing their trailing 12-month returns, the strategy selects the geographic region that is leading the current global cycle, avoiding lagging stock markets.

Academic research shows that relative momentum exists due to behavioral finance anomalies, such as investor underreaction to news, herding behavior, and late-stage FOMO. It is a powerful tool to capture excess returns (alpha) but can suffer during rapid market turning points.