Key Takeaways
- • The S&P 500 momentum index outperformed the regular S&P 500 by 4.6% annually over the ten-year period ending July 31, 2026, despite an 11% pullback in July, demonstrating momentum as a persistent and robust factor premium across time periods and geographies.
- • Fundsmith CEO Terry Smith announced in his H1 2026 letter a pivot toward momentum-driven investing, acknowledging uncertainty about when momentum will cease working while recognizing its historical effectiveness as an investment factor.
- • Crossroads Capital adopts a "momentum-agnostic" philosophy, rejecting dogmatic dismissal of momentum stocks while maintaining that strong fundamental inflection can justify momentum characteristics—positioning themselves as research-driven value investors willing to own momentum-exhibiting securities when fundamentals support valuations.
- • Value investors who categorically avoid momentum stocks ignore empirical evidence of the factor's robustness and risk missing opportunities where fundamental strength naturally produces momentum; Crossroads Capital argues that portfolios lacking at least some momentum exposure may lack adequate fundamental rigor.
Summary
Crossroads Capital has articulated a nuanced framework for value-oriented investors navigating momentum exposure, challenging the widespread dogmatism that dismisses momentum stocks within the value investment community. The firm's commentary, published in September 2026, directly responds to Terry Smith's surprising H1 pivot at Fundsmith Equity Fund toward momentum-driven investing, using this development as a springboard to examine how value investors should rationally approach momentum factor exposure.
The quantitative case for momentum remains compelling. The S&P 500 momentum index—constructed from approximately 100 S&P 500 constituents ranked by prior risk-adjusted momentum while excluding the most recent month and applying volatility-based weighting and concentration constraints—generated 4.6% annual outperformance relative to the broad S&P 500 over the ten-year period ending July 31, 2026. This performance persisted despite significant headwinds, including an 11% pullback in July 2026. As Crossroads Capital notes, momentum ranks among the most robust factor premiums on record, persisting across multiple time periods, geographies, and asset classes—a point validated by quantitative practitioners across the industry.
Crossroads Capital's core thesis rejects the pejorative "momo" terminology prevalent among value-focused peers, instead positioning momentum-agnosticism as intellectually consistent with fundamental research disciplines. The firm argues that strong momentum often reflects genuine inflection in underlying business fundamentals rather than mere technical speculation. When companies exhibit improving margins, revenue acceleration, or strategic inflection points, natural momentum emerges as a byproduct of fundamental strength. To categorically avoid such securities based on style dogmatism creates a false choice between value discipline and observing market reality. Notably, Crossroads emphasizes this stance is not an endorsement of momentum investing as a primary strategy nor a "Fundsmith Moment"—rather, it represents methodological flexibility within a value-centric framework.
The firm implicitly challenges the intellectual consistency of value portfolios that contain zero momentum-exhibiting holdings, suggesting such outcomes indicate insufficient fundamental conviction or analytical rigor. This perspective invites recalibration among institutional allocators and family offices regarding factor exposure—not as a call to abandon value discipline, but as evidence that rigid factor avoidance may create unintended style purity at the cost of alpha generation. The commentary reflects 2026 market conditions in which sustained momentum performance and fundamental strength have often aligned.
The quantitative case for momentum remains compelling. The S&P 500 momentum index—constructed from approximately 100 S&P 500 constituents ranked by prior risk-adjusted momentum while excluding the most recent month and applying volatility-based weighting and concentration constraints—generated 4.6% annual outperformance relative to the broad S&P 500 over the ten-year period ending July 31, 2026. This performance persisted despite significant headwinds, including an 11% pullback in July 2026. As Crossroads Capital notes, momentum ranks among the most robust factor premiums on record, persisting across multiple time periods, geographies, and asset classes—a point validated by quantitative practitioners across the industry.
Crossroads Capital's core thesis rejects the pejorative "momo" terminology prevalent among value-focused peers, instead positioning momentum-agnosticism as intellectually consistent with fundamental research disciplines. The firm argues that strong momentum often reflects genuine inflection in underlying business fundamentals rather than mere technical speculation. When companies exhibit improving margins, revenue acceleration, or strategic inflection points, natural momentum emerges as a byproduct of fundamental strength. To categorically avoid such securities based on style dogmatism creates a false choice between value discipline and observing market reality. Notably, Crossroads emphasizes this stance is not an endorsement of momentum investing as a primary strategy nor a "Fundsmith Moment"—rather, it represents methodological flexibility within a value-centric framework.
The firm implicitly challenges the intellectual consistency of value portfolios that contain zero momentum-exhibiting holdings, suggesting such outcomes indicate insufficient fundamental conviction or analytical rigor. This perspective invites recalibration among institutional allocators and family offices regarding factor exposure—not as a call to abandon value discipline, but as evidence that rigid factor avoidance may create unintended style purity at the cost of alpha generation. The commentary reflects 2026 market conditions in which sustained momentum performance and fundamental strength have often aligned.
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