For much of the past decade, momentum has occupied a dominant position in factor investing, benefiting from sustained trends in large-cap growth and technology-led leadership. The year 2025 delivered a notable reversal as valuation sensitivity increased and market leadership broadened. As a result, value emerged as the strongest-performing factor globally.
The Data Behind the Shift
Performance data from the Q4 Morningstar Factor Monitor highlights the magnitude of the leadership change during 2025.
The Morningstar Global Value Factor Index finished the year at the top of the factor leaderboard, delivering a 32.58% one-year return. Momentum, by contrast, experienced a sharp reversal late in the year. After leading factor performance in 2024, momentum returned just 0.77% in the fourth quarter of 2025, compared with an 8.34% gain for value over the same period in Q4 of 2025.
Another notable outcome was the resurgence of income-oriented strategies. The yield factor ranked third for the year with a 28.11% return, signaling possible renewed investor interest in fundamentally driven approaches amid changing macroeconomic conditions.
Why Value Led in 2025
Much of the value factor’s strength came from differentiation within sectors rather than broad sector tilts. The report states that, in December, Microsoft migrated toward the core blend profile. As a result, the stock was incorporated into certain value-oriented strategies, illustrating how factor classifications can evolve as fundamentals and market pricing change.
Intrasector selection across Technology, Financials, and Industrials also appears to have played a central role in performance. Rather than avoiding growth-heavy industries altogether, value strategies benefited from identifying companies trading at relatively attractive valuations within those sectors.
Momentum’s Reversal and Factor Cyclicality
Momentum’s late-2025 drawdown reflects the inherent cyclicality of trend-following strategies. Momentum tends to perform best when leadership is stable and trends persist. When those trends narrow or reverse, the factor can adjust quickly and, at times, abruptly.
2025 was the reversion in the relationship between value and momentum. The positive correlation between the two factors observed in the third quarter dissipated in the fourth quarter, returning to a more typical pattern in which they move in opposite directions. This shift amplified relative performance differences as momentum corrected and value advanced.
A Reminder of Factor Rotation
The shift from momentum to value leadership in 2025 serves as a reminder that factor performance is cyclical and regime-dependent. No single factor leads consistently, and periods of dominance are often followed by normalization or reversal.
From an implementation perspective, combining value-oriented strategies like the CI U.S. Enhanced Value Index Fund with momentum-focused strategies such as the CI U.S. Enhanced Momentum Index ETF (CMOM) reflects how different factors respond to shifting market conditions. Value and momentum often perform differently in the same environment, so holding both may help smooth returns over time without relying on the ability to predict which factor will lead next.
For long-term investors, the takeaway is not that value has permanently replaced momentum, but that diversified exposure across factors — implemented through transparent, rules-based strategies — can help manage cyclicality while maintaining participation across changing market conditions.
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