DEFINITION of 'Momentum Fund'

Investment funds that invest in companies based on current trends in such things as earnings or price movement. The portfolio manager will look for companies that have been trending in a certain direction (e.g. a series of extremely positive earnings releases or upward price momentum in the short term). The manager will then take positions in the same direction as the trend and attempt to ride the wave and sell once it has peaked.

These funds are also known as "momo funds".

BREAKING DOWN 'Momentum Fund'

This type of fund, which was very popular in the late 1990s, will often make investments in companies that have grown their earnings or sales at a rapid pace, looking for further increases in the near future. Momentum funds also invest based on technical indicators such as price breakouts from historic levels. The investment premise of this type of fund has often been questioned by the more long-term, value oriented segments of the market, as it is considered difficult to predict short-term price movement.

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