While our example of momentum in action serves as a good illustration of the strategy at work, in practical terms there are a few things to bear in mind. The data we've used has limitations as it is based only on current FTSE 100 constituents, which gives the results a bias in favour of the winners and against the losers. That's because the shares that are in the FTSE 100 now have done well enough not to have been ejected.
The other major consideration is dealing costs. These have not been included in our working and are often regarded as a major hurdle to momentum strategies. We found that the 10 stock winners portfolio on average required positions to be opened and closed almost 19 times a year. On the other hand, we've also ignored the impact of dividends and instead focused purely on capital returns.
Top 10 momentum picks for Q2 2009
