Twenty-two 'Monster Momentum' stocks

What have been the big momentum trades of 2024? Despite a brief summer wobble, Nvidia (US:NVDA) would be the obvious candidate, having added to its run as one of the biggest US momentum stocks of 2021 and 2023. After a 200 per cent share price ascent since the new year, the $3.6tn (£2.8tn) company is now the largest on earth.

While the GPU-hawker has been the most notable (and followed) momentum story, it isn’t alone. In the US, the AI theme has remained a big ‘buy’ idea, so too the now-adjacent nuclear energy sector. Berkshire Hathaway (US:BRK.B) marched higher, driven in part by its weighting to US banks. UK lenders – NatWest (NWG) and Barclays (BARC) in particular – have also had a very good year.

Then there’s precious metals. The sterling-denominated gold price is up 31 per cent and silver has climbed 45 per cent, albeit sentiment towards miners of both substances has been more mixed.

In every case, two elements qualify these assets as momentum trades. First, and quite obviously, their prices have gone up, and up more than the market. Second, their price rises have been consistently upward, rather than tracing a series of volatile lurches that eventually end higher.

For a brief window between January and May, it also looked as though UK blue chips writ large might be a momentum trade. Alas, after climbing 13 per cent in simple price terms, the FTSE 100 ran out of steam, weighed down by its high gearing to resources (which had largely pushed it up in the first place).

Perhaps, for a brief window when core inflation was falling, commodity prices were rising, M&A was bubbling and optimism was improving, UK shares were a momentum story. After all, the point at which momentum can be said to have occurred is often subjective. While our initial question suggests a 10-month period qualifies, the truth is there is no single definition.

Duration does matter, mind. In the days before the US presidential election, some commentators judged the result of a single, 808-person poll in Iowa to have given Kamala Harris ‘momentum’ in the battle for the White House. Whether this represented underlying momentum for Harris is impossible to tell, although with hindsight the episode looks like short-term noise, amplified by confirmation bias.

In the stock market, momentum is usually easier to spot, because prices reflect sentiment in real time. When that time is extended, it can have a multiplying effect. If momentum is sustained, this inevitably draws in speculators who see the price ascent as part of the investment case.

Our Monsters of Momentum stock screen, one of the longest running in our stable, is based on the ideas that momentum can last for up to two years. That’s because in selecting stocks every 12 months, it considers a stock’s momentum over the previous year. And judging by its headline results, the screen has been a success. Since 2010, its average compound total return has been 12.7 per cent per year, versus 6.5 per cent from the index from which its picks are drawn, the FTSE All-Share.

The past 12 months have seen a return to form. After lagging the index between 2021 and 2022, the nine 2023 selections generated an average total return of 20.4 per cent, against 17 per cent from the benchmark. That result pushed the all-time return from the screen to 435 per cent, against 143 per cent from the FTSE All-Share. That’s the headline figure at least: while the screens in these pages are meant as a source of ideas rather than ready-made portfolios, if we add a chunky 1.5 per cent annual charge to represent notional trading costs, that headline total return falls by almost a quarter.

An interesting feature of the 2023 Monsters’ performance is that, collectively, the selections ticked each of our momentum trade boxes. In the nine months until the end of July, the ‘portfolio’ went up, consistently, by more than the market, and without lurches higher or lower. Though you would expect multiple assets to smooth volatility somewhat, this also broadly reflected the trend of the underlying stocks over the same period. Between December and June, there was a lot of correlation, even if ultimately, only Irn-Bru maker AG Barr (BAG) and private credit trust CVC Income & Growth (CVCG) maintained a consistent and steady total return momentum over the full 12 months.

As in years past, this combination of tests represents an extremely high bar for selection. This time around, just two stocks – South American precious metals digger Hochschild Mining (HOC) and windows supplier Eurocell (ECEL) – managed to tick every box, meaning we have had to admit some names with weakened criteria for the fifth year in a row. To pass this lower hurdle, stocks must clear the key price momentum test, but only two of the other three tests (though in the event, all 20 of the ‘weakened test’ stocks passed the trend criteria, too).

For more details on the stocks in this year’s cohort – including a more detailed summary of their fundamentals in a downloadable spreadsheet – see below.