As England celebrate a place in the FIFA World Cup semi-final, attention has inevitably turned to whether momentum alone will be enough to lift the trophy.
According to new analysis from St. James’s Place, investors face a similar question, with markets increasingly rewarding recent winners despite growing concentration and stretched valuations.
Momentum continues to dominate markets
Momentum investing has delivered returns of more than one third (36.7%) over the past 12 months, compared with gains of just 3.1% for value investing, while quality investing has fallen 8.6%. This gap in performance represents more than 45 percentage points between momentum and quality investing, with performance driven by a relatively small group of companies.
While different investment styles have historically moved in and out of favour, the current divergence between momentum, value and quality is unusually pronounced. Investors relying too heavily on recent market winners could become increasingly exposed should market leadership broaden or valuations come under pressure.
Market concentration continues to increase
Information technology now represents more than one third (36%) of the MSCI US Index, up from just over one fifth (22%) in 2022. Within the MSCI Emerging Markets Index, the sector has grown from less than one fifth (18%) to almost half (44%) over the same period.
At the same time, semiconductor companies have accounted for an increasing share of technology sector performance, with their weighting within the MSCI US Information Technology Index rising from around 5% in 2022 to almost one fifth (20%) in 2026.
Exponential growth in demand for companies supporting the development and expansion of AI infrastructure – including semiconductors and data centres– has been a driving force. As a result, market returns have become increasingly concentrated within a relatively small number of companies.
“The latter stages of every World Cup create a sense of inevitability around certain teams. Despite this, football has a habit of reminding us that even the strongest starts don’t always produce champions. The teams that go the distance are usually those with the discipline, balance and resilience to adapt when the game changes.
“Markets are similar. Over the past year, we’ve seen returns become increasingly concentrated, particularly among the companies leading innovation in technology and AI. In many cases, that has been supported by strong earnings growth and genuine technological progress. Even the strongest investment themes evolve, and market leadership evolves with them.
“The sensible medium-term approach is to recognise the opportunities momentum can create without feeling compelled to chase them. The challenge is understanding what is already reflected in prices and where risks may be building. When markets become increasingly concentrated, maintaining diversification, staying disciplined on valuations and focussing on long-term fundamentals become even more important. Or in footballing terms, momentum wins matches, resilience wins tournaments.”
Justin Onuekwusi, Chief Investment Officer at St. James’s Place
