Following the crowd is an easy way to find good restaurants, music and other worthwhile experiences. It’s not a perfect strategy by any means, but popularity provides a handy shortcut to the good life.
Crowd-following also works well in the markets where momentum has been highly successful over the long term. The idea is to buy stocks that have climbed the most over the past six to 12 months while being prepared to jump to the next hot thing when it comes along.
Today’s examples of Canadian momentum are the six-month and 12-month momentum portfolios, which chalked up average annual gains of 17.4 per cent and 19.5 per cent, respectively, over the 26 years through to the end of February, 2026.
Meanwhile, the Canadian stock market, as represented by the S&P/TSX Composite Index, climbed at an average annual rate of 8.1 per cent.
(The returns herein are based on backtests using monthly data from Bloomberg. They include dividend reinvestment but not fund fees, taxes, commissions or other trading costs. The portfolios are equally weighted and rebalanced monthly.)
Both momentum portfolios start with the largest 300 common stocks on the TSX, by market capitalization. They then buy an equal-dollar amount of the 10 stocks with the highest six-month, or 12-month, prior returns. The portfolios are rebalanced monthly, which is akin to selling all of their stocks and rebuilding them from scratch.
Mind you, the 10-stock portfolios tend to be fairly risky. It’s safer to opt instead for portfolios containing 20, 30, or 50 of the top prior performers. As expected, portfolios with five stocks didn’t fare as well and tended to be more volatile. You can examine the long-term growth rates of the aforementioned portfolios in the accompanying table.
It’s worth pointing out that similar one-stock portfolios basically went bust over the 26-year period, with the six-month version losing 99.9 per cent of its money and the 12-month version falling 93.4 per cent. Both gave up more than 80 per cent in only a few months when the internet bubble popped in 2000 and they continued to lag thereafter.
Mind you, the more diversified momentum portfolios also suffered from sharp downturns from time to time and the accompanying graph shows periods when the 10-stock portfolios fell from their prior highs.
As you can see, the biggest declines for the six- and 12-month momentum portfolios occurred in the early 2000s when they fell 66 and 71 per cent, respectively. The market index fared a bit better but still stumbled 43 per cent from its prior high.
The financial crisis of 2008-2009 was another doozy of a downturn. Once again, the market index fell 43 per cent from its prior high. The relative results for the momentum portfolios were mixed this time around with the six- and 12-month portfolios falling 40 per cent and 60 per cent, respectively.
But, generally speaking, the 10-stock momentum portfolios were far more volatile than the market index over the 26-year period. They also languished almost twice as often than the market index in corrections (down more than 10 per cent from their prior highs) and bear markets (down more than 20 per cent).
In recent months, the six- and 12-month portfolios have been surging higher with gains of 137 per cent and 248 per cent, respectively, over the year to the end of February, 2026. The market index advanced by 39 per cent over the same period.
While I’ve high hopes that the more diversified momentum portfolios will continue to fare well over the long term, it’ll be interesting to see how well they hold up as the war in the Middle East progresses.
Details on the stocks in the six-month and 12-month 10-stock momentum portfolios and the others regularly followed at The Globe and Mail can be found via this link.
Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.
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