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Alex Johnson

Alex Johnson

Executive Director, MSCI Research

Simon Minovitsky

Simon Minovitsky

Vice President, Equity Research Team

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Understanding the Industry-Momentum Factor

  • The industry-momentum factor reflects the tendency of stocks in “winning” industries to continue to perform well and how those from “losing” industries tend to continue to underperform, as investors may initially underreact to market news.
  • As global equity markets responded to the COVID-19 pandemic, the factor showed positive performance.
  • We found that a relatively small number of sub-industries that were significantly impacted drove performance during this period.

When COVID-19 initially swept through global equity markets, many factors exhibited unprecedented performance swings. One such factor was the industry-momentum factor — one of 14 Systematic Equity Strategy factors1 in the MSCI Barra Global Equity Trading Model (GEMTR). How could institutional investors interpret this factor’s moves in the context of the underlying market dynamics?

The industry-momentum factor reflects the tendency of stocks in “winning” industries to continue to perform well and how those from “losing” industries tend to continue to underperform, as investors may initially underreact to market news. Similar to price momentum, this effect is well documented in academic literature.2

The factor is constructed by using the Global Industry Classification Standard (GICS®)3 sub-industry classification to group stocks. A momentum score is created, defined by the weighted relative strength of a company’s peers within the same sub-industry over the trailing six months.4 This is a relatively high-turnover factor relevant at short investment horizons and so typically included as a factor in medium-term and trading equity-risk models.

In this blog post, we examine the performance of this factor over the period from late February to early April 2020, when global equity markets crashed as a result of the COVID-19 pandemic.


Factor Performance over the COVID-19 Period

The exhibit below shows the performance of the industry-momentum factor from January 1995 to August 2020 and for different regional-equity models. Over the long term, this factor has typically produced positive returns with low volatility.


Performance of the Industry-Momentum Factor in Different Regional Models

More recently, as the COVID-19 pandemic affected financial markets, there was significant improvement in the factor’s performance. Looking at the first half of 2020 through the MSCI Global Total Market Equity Trading Model, we saw that most of the return occurred between Feb. 21 and April 3 (shaded in exhibit below).


Year-to-Date Performance of Industry-Momentum Factor in Global Trading Model


Sub-Industry Drivers of Performance

To understand the drivers of performance, we analyzed sub-industry contributors to the industry-momentum factor’s return. A sub-industry would be a positive contributor to the factor’s return if it continued to follow the same performance trend as in recent history. The chart below shows the factor’s total performance, as well as contributions from the top and bottom 10 sub-industries, from Feb. 21 to April 3. Positive performance contributions were concentrated in 20 (out of 158) sub-industries (other regional models showed a similar concentration).


Total Contribution from Top/Bottom 10 GICS Sub-Industries

Data from Feb. 21 to April 3, 2020. Source: MSCI Barra Global Equity Trading Model

Which sub-industries drove performance? The table below lists the top 10 positive and negative contributors to the factor’s return in GEMTR. For illustration, we also include the average start-of-period exposures to the industry-momentum factor for each sub-industry in the model’s estimation universe.


Top/Bottom GICS Sub-Industry Contributors to Return

  Factor Exposure
(Standard Deviation)
Top 10 Positive GICS Sub-Industry Contributors  
1 Hotels, Resorts & Cruise Lines +0.9%   -1.6
2 Retail REITs +0.7%   -1.9
3 Human Resource & Employment Services +0.6%   -2.0
4 Hotel & Resort REITs +0.5%   -2.3
5 Asset Management & Custody Banks +0.4%   +0.9
6 Apparel Accessories & Luxury Goods +0.4%   -1.1
7 Industrial Machinery +0.4%   -0.0
8 Oil & Gas Refining & Marketing +0.3%   -0.7
9 Industrial Conglomerates +0.3%   -0.9
10 Life & Health Insurance +0.3%   -0.5


Top 10 Negative GICS Sub-Industry Contributors      
1 Homebuilding -0.5%   +2.8
2 Electrical Components & Equipment -0.5%   +1.3
3 Internet & Direct Marketing Retail -0.4%   +1.5
4 Specialized REITs -0.3%   +2.1
5 Research & Consulting Services -0.3%   +1.9
6 Education Services -0.3%   +2.0
7 Financial Exchanges & Data -0.3%   +0.6
8 Environmental & Facilities Services -0.3%   +1.2
9 Property & Casualty Insurance -0.3%   +0.6
10 Oil & Gas Storage & Transportation -0.3%   +0.6

Data from Feb. 21 to April 3, 2020. Source: MSCI Barra Global Equity Trading Model

Positive contributions came mostly from the sub-industries that were negatively affected by COVID-19. The exponential weighting scheme used in the factor’s construction drove the factor to underweight many of the sub-industries already underperforming the broader market when the sell-off took place. When these sub-industries declined even faster, the factor’s outperformance accelerated further.

The factor’s negative exposure to various sub-industries helped buoy its performance. For example, tourism-related sub-industries were among the first wave to be negatively impacted by the unfolding crisis: Travel restrictions adopted by many countries in an attempt to quell the spread of the virus resulted in hotels, resorts & cruise lines dropping 12% in the first six weeks of the year. During the next six weeks, as the coronavirus took a firmer grip on equity markets, this sub-industry declined a further 60%. Similarly, this wave also affected the hotel & resort REITs sub-industry, as investors anticipated further losses for tourism-related REITs.

The retail sector also suffered early in the COVID-19 crisis, as consumers avoided shopping in public places (except for essentials like groceries and health-care products), causing many brick-and-mortar stores to close. Examples of distressed retail sub-industries were apparel, accessories & luxury goods and the retail-REIT sub-industries (down 27% and 50%, respectively, over the six weeks of the crisis).

Regional models show similar contributors to performance from these sub-industries.



Why did the industry-momentum factor produce positive performance during the market’s initial COVID-19 decline? Our analysis shows it was driven by a concentration of already-underperforming sub-industries as they entered the pandemic, when they declined further. This analysis assists the understanding of the industry-momentum factor’s performance both through its construction and the market dynamics.



1MSCI’s Systematic Equity Strategies refer to the systematic implementation of fundamental or technical investment anomalies or strategies. They are a subset of style factors.

2See, for example:
Moskowitz, T. J. and Grinblatt, M. 1999. “Do Industries Explain Momentum?” Journal of Finance.
Giannikos, C. and Ji, X. 2007. "Industry Momentum at the End of the 20th Century." International Journal of Business and Economics.

3GICS is the global industry classification standard jointly developed by MSCI and Standard & Poor’s.

4A one-month half-life is typically applied to give higher weight to the more recent performance period.



Further Reading

Using Systematic Equity Strategies

Employing Systematic Equity Strategies (client access only)

Employing Style Rotation with MSCI’s Systematic Equity Strategy Factors (client access only)

Measuring the Impact of Factors

Which Factors Are More Time-Sensitive?