Momentum vs Value: Which Factor Wins in 2026's Market?

The 2020s have been brutal for value factors. Growth and momentum dominated for the decade following 2010 as central banks suppressed discount rates. The 2022 rate cycle changed conditions dramatically. We re-ran the numbers across UK and US markets for 2016-2026 to see what actually worked.

Defining the Factors

Momentum: buy stocks that have performed best over the prior 12 months (excluding the last month). Value: buy stocks with the lowest price/book and price/earnings. Quality: buy stocks with high return on equity, low leverage, and stable earnings. These are the three factors most robustly supported by academic literature.

Results: 2016-2026

Quality won. Across both US and UK markets, quality factors (high ROE, low leverage, earnings stability) delivered the best risk-adjusted returns over the full period. Momentum was the highest raw return in 2017-2021 but suffered severe drawdowns in 2022. Value lagged badly from 2016-2020 then staged a partial recovery from 2022 onwards — particularly in the UK where energy, banking, and industrial stocks led.

The Combination Premium

The most durable strategy across the full period was quality + value: cheap companies with strong fundamentals. This is the exact intersection that DipBuster's scoring framework targets. High Graham/NCAV scores (value) combined with positive earnings quality (fundamentals component) produce the best historical risk-adjusted outcomes among the stocks we track.

Why Momentum Is Dangerous for Individual Investors

Momentum strategies require rapid turnover (typically 30-60 day holding periods), which generates significant transaction costs and tax events. They also require mechanical execution — buying recent winners feels psychologically natural but requires selling them when momentum reverses, which requires discipline most investors don't maintain. For retail investors without systematic execution, pure momentum is a strategy that looks good in theory and costs money in practice.

Factor return data sources: AQR, Ken French Data Library. For educational purposes only.