Combining value and momentum strategies can improve returns while reducing risk. Value investing focuses on undervalued stocks with strong fundamentals, while momentum investing targets stocks with recent strong performance. Together, they balance each other’s weaknesses and offer diversification benefits. Here’s how you can merge these two approaches effectively:

1. Build a Value Portfolio: Choose undervalued stocks using metrics like EBIT/TEV, Free Cash Flow Yield, and Price-to-Book (P/B). Apply quality filters (e.g., Piotroski F-Score of 8-9, Altman Z-Score above 3.0) to avoid value traps.
2. Build a Momentum Portfolio: Identify stocks with strong recent performance using the 12-1 month momentum rule. Apply liquidity filters to avoid high transaction costs.
3. Allocate 50/50: Divide your capital equally between value and momentum portfolios. Keeping them separate improves returns and diversification.
4. Rebalance Regularly: Adjust your portfolio quarterly or annually to maintain balance and manage trading costs.
5. Monitor and Refine: Track performance using metrics like Sharpe Ratio and Sortino Ratio. Use quality filters and systematic rules to improve risk management and consistency.

Studies show that a 50/50 split between value and momentum portfolios can achieve higher returns and lower volatility compared to using either strategy alone. For instance, from 1963 to 2013, this approach delivered a compound annual growth rate (CAGR) of 14.75% and a Sharpe ratio of 0.53.

Step 1: Build a Pure Value Portfolio

Selecting Value Stocks

To create a value portfolio, focus on finding stocks that are trading below their intrinsic value. Use a combination of valuation metrics to avoid relying on a single ratio, which might lead to value traps. Key metrics include:

• EBITDA Yield: Measures operating earnings relative to enterprise value.
• Earnings Yield: Essentially the inverse of the price-to-earnings (P/E) ratio.
• Shareholder Yield: Considers dividends and buybacks.

By combining these metrics, you can get a clearer picture of a stock’s value.

When screening, look for stocks with a Price-to-Book (P/B) ratio below 1.0, as this indicates they are trading for less than their net asset value. For example, in March 2026:

• Sinarmas Land Limited: P/B of 0.368, Piotroski F-Score of 9, and Altman Z-Score of 7.9.
• PNE Industries: P/B of 0.815, F-Score of 8, Z-Score of 3.623, and a 7.6% dividend yield at SGD 0.785 per share.

To refine your selection, apply quality filters. Look for stocks with a Piotroski F-Score of 8–9 and an Altman Z-Score above 3.0, narrowing the list to 10–15 strong candidates. As Warren Buffett famously said:

Price is what you pay, value is what you get.

After identifying undervalued, high-quality stocks, make sure they can be traded efficiently.

Applying Liquidity Filters

Liquidity filters are essential to ensure smooth trading, especially in Singapore, where brokerage fees and stamp duties can add up. These filters help minimise slippage and reduce costs.

Use the Operating Profit over Yearly Traded Value ratio to check if a stock’s earnings align with its market liquidity. Additionally, employ a stock screener to eliminate the lowest 30% of stocks in terms of liquidity.

A practical example is Tim du Toit’s Quality Value Momentum strategy in Europe. By filtering out illiquid stocks and selecting the top 20% based on Earnings Yield (EBIT/EV), the strategy rebalanced semi-annually. This approach turned €10,000 into €114,180, compared to €15,720 for the European STOXX Total Return index.

These steps ensure your portfolio is not only built on value but also remains practical and cost-effective to manage.

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Step 2: Build a Pure Momentum Portfolio

With your value portfolio in place, it’s time to shift gears and focus on systematic momentum investing, which aims to ride short-term market trends.

Ranking Stocks by Momentum

Momentum investing zeroes in on stocks that have shown strong recent performance, capitalising on existing trends. A widely used method for this is the 12‑1 month momentum rule. This technique calculates total returns over the past 12 months but excludes the most recent month. Why skip the last month? It helps avoid the short-term reversal effect, where stocks that spike in the past 30 days often experience a pullback before continuing their trend.

Here’s how to apply it: rank all investable stocks using the 12‑1 month metric and focus on the top 10% of performers. For Singapore investors, it’s wise to apply liquidity filters – removing stocks below a certain market capitalisation. This step helps you avoid the high transaction costs and price swings often associated with micro-cap stocks.

Clifford Asness, Co-founder of AQR Capital Management, sums it up well:

“Momentum represents the most popular trades, as investors chase returns and flock to the assets whose prices appreciated most recently.”

Once your rankings are set and liquidity filters applied, you’re ready to build a portfolio that mirrors current market trends.

Constructing the Portfolio

After identifying the top momentum stocks, the next step is to construct your portfolio. Use market capitalisation weighting to allocate funds. This approach ensures that larger, more liquid companies dominate your portfolio, reducing the impact of small-cap volatility.

Historical data backs up the potential of this strategy. From 1963 to 2013, a value-weighted portfolio of the top decile momentum stocks achieved a CAGR of 15.17%, outperforming the S&P 500’s 10.21%. However, this higher return comes with increased risk. During that same period, the momentum portfolio faced a maximum drawdown of –58.04%, compared to the S&P 500’s –50.95%.

To manage this volatility, it’s essential to rebalance your portfolio either monthly or quarterly. This frequent adjustment helps you stay aligned with prevailing trends and complements the stability provided by your value portfolio.

Step 3: Allocate Equally Between Portfolios

With both portfolios ready, the next step is to divide your capital equally – 50% into the value portfolio and 50% into the momentum portfolio. This balanced allocation leverages the unique strengths of each strategy while simplifying rebalancing.

Why Separate Holdings Work Better

Separating value and momentum portfolios has proven to deliver better outcomes. Between 1963 and 2013, a 50/50 allocation across separate portfolios achieved a Compound Annual Growth Rate (CAGR) of 14.75% and a Sharpe ratio of 0.53. In contrast, a blended portfolio combining both strategies only reached a CAGR of 14.11% with a Sharpe ratio of 0.49.

One key reason for this success is the historical negative correlation (~-0.4) between value and momentum strategies, which enhances diversification. This negative correlation creates what’s often referred to as a “rebalance bonus” – an opportunity to turn market volatility into extra returns. For highly concentrated portfolios (e.g., focusing on the top 10% of stocks), this bonus can add about 0.66% annually. Jack Vogel, PhD, from Alpha Architect, puts it succinctly:

“Pure value and pure momentum strategies have lower correlations than ‘blended’ versions.”

By keeping value and momentum investments separate, you avoid diluting the unique benefits of each strategy. This ensures that the value portfolio focuses on undervalued stocks, while the momentum portfolio captures stocks with rising trends – maximising each factor’s potential.

Comparing Performance

The table below highlights the performance of different strategies, showcasing the clear advantage of a 50/50 separate allocation:

The 50/50 approach not only delivers higher returns but also reduces risk. For instance, the maximum drawdown of -51.93% is significantly less severe compared to the standalone value (-60.16%) or momentum (-64.93%) strategies, as well as the blended portfolio (-56.44%). This makes it especially appealing for Singapore investors who want to ride out market downturns without compromising on long-term performance.

Wayne Thorp from AAII captures the essence of this strategy:

“The negative correlation between value and momentum strategies coupled with their high expected returns make a simple strategy of equally weighting a portfolio with value and momentum stocks powerful.”

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Step 4: Rebalance Quarterly or Annually

Once you’ve split your capital equally, the next step is deciding how often to rebalance your portfolio. This ensures your investments stay aligned with your strategy while managing costs effectively. The rebalancing frequency you choose plays a crucial role in balancing returns and expenses.

Choosing a Rebalancing Frequency

Rebalancing quarterly is a practical choice as it captures momentum shifts while keeping trading costs manageable. Tim du Toit, Founder of Quant Investing, shares his perspective:

“Quarterly rebalancing worked well, balancing cost and tracking error. Annual rebalancing had almost the same returns [as monthly] but was easier to manage.”

For taxable accounts, annual rebalancing has its advantages. It reduces short-term capital gains tax and trading costs without sacrificing much in terms of returns. However, if you’re using tax-advantaged accounts like the Supplementary Retirement Scheme (SRS), quarterly rebalancing becomes more attractive since it won’t trigger immediate tax liabilities.

Historical data from 1927 to 2015 supports annual rebalancing for a 50/50 split between value and momentum portfolios, showing steady returns with fewer drawdowns. This approach maintains the balance between risk and return established in Step 3. On the other hand, momentum-focused strategies benefit from more frequent updates. Research from 2003 to 2026 highlighted the following:

• Monthly rebalancing: +1,220.7%
• Quarterly rebalancing: +442.5%
• Annual rebalancing: +963.7%

While more frequent rebalancing can boost momentum returns, higher trading costs might offset those gains. Balancing timing and cost is key.

Minimising Frictions

Trading isn’t free, especially in Singapore. Costs can pile up quickly, including brokerage fees (typically 0.08%–0.28% per trade), bid-ask spreads, slippage on illiquid stocks, and the 30% dividend withholding tax for US-listed securities. To keep these expenses in check, consider these strategies:

• Use incoming cash flows: Deploy dividends, interest, or new contributions to adjust underweighted stocks instead of selling, which avoids triggering capital gains.
• Focus on tax-advantaged accounts: Rebalance within accounts like SRS to avoid immediate tax consequences.
• Set drift thresholds: Instead of rebalancing on a fixed schedule, act only when your portfolio drifts significantly – e.g., more than 5% from the target allocation. This reduces unnecessary trades in stable markets.

When selling is unavoidable, prioritise tax lots with higher cost bases to minimise realised gains. For less liquid small-cap stocks, use limit orders to control execution prices and avoid unfavourable fills. A study by T. Rowe Price (February 1998 to January 2023) found that using wider tolerance bands – such as 3% fixed or 25% relative – led to a portfolio increase of over S$10,000 and added 56 basis points to annualised returns compared to portfolios that never rebalanced.

Rebalancing isn’t just about returns; it’s about maintaining control over your portfolio’s risk. As Justin Reed, Chief Investment Officer at Brown Brothers Harriman, puts it:

“Rebalancing is primarily an exercise in risk control – that is, one that keeps a portfolio’s characteristics in line with a carefully developed target asset allocation.”

Step 5: Monitor and Refine with Risk Management

Once you’ve successfully combined value and momentum strategies, the real work begins. Regular monitoring and adjustments are essential to keep your portfolio balanced and manage risks effectively. Building the portfolio is just the starting point – its long-term success depends on how well you track its performance and refine your approach.

Tracking Portfolio Performance

To gauge how well your portfolio is doing, focus on risk-adjusted metrics like the Sharpe Ratio, Sortino Ratio, and Maximum Drawdown. These indicators provide a clearer picture of your portfolio’s performance relative to the risks taken. Maintaining a trading journal and developing trading plans are equally important. Record details such as entry and exit points, the reasoning behind trades, market conditions (e.g., Straits Times Index trends), and even your emotional responses. This disciplined approach allows for weekly and monthly reviews that can uncover patterns or areas for improvement.

For instance, historical data from 1963 to 2013 shows that a 50/50 allocation to separate Value and Momentum portfolios produced a Sharpe Ratio of 0.79 and a Sortino Ratio of 1.18. These metrics underline the importance of ongoing evaluation and highlight opportunities to fine-tune your stock selection process through additional filters.

Incorporating Quality Filters

Adding quality filters to your strategy can improve your returns significantly. Consider the results of a 13-year backtest (2001–2014) of the Quality Value Momentum (QVM) strategy in Europe: a €10,000 investment grew to €114,180, while the benchmark index only reached €1,572. Similarly, in North America, a QVM strategy turned a US$10,000 investment into US$106,238, compared to US$26,899 for the Russell 2000 index.

Tim du Toit, Founder of Quant Investing, sums up the QVM approach:

“The Quality, Value and Momentum (QVM) investment strategy boils down to the following simple principles: Remove bad quality companies, look for undervalued companies that have good share price momentum, and choose only the most undervalued companies.”

Quality filters such as Free Cash Flow/Total Debt, Gross Margin, and Accrual Ratio help eliminate weaker companies. Research shows that applying these filters to value stocks can lead to higher compounded annual growth rates (CAGRs) and better Sharpe/Sortino ratios compared to relying on momentum alone.

Integrating Systematic Strategies

To further strengthen your strategy, consider implementing rule-based systems that promote discipline. For example, use volatility-based stops calculated with the Average True Range (ATR). Set stop-losses at 1.5 to 2 times the ATR to adapt to changing market conditions. Similarly, determine your position size by dividing your risk amount by the product of ATR and stop distance.

Collin Seow, Founder of Collin Seow Trading Academy, highlights the importance of systematic approaches:

“Success in trading is not just about making decisions; it’s about making informed decisions… particularly in addressing the critical aspects of trading: what to buy, when to buy, and how much to buy.”

Collin Seow Trading Academy’s Systematic Trader Program (https://collinseow.com) teaches traders to adopt data-driven processes that remove emotions from decision-making. By sticking to systematic methods, you can maintain the discipline required to navigate both profitable and challenging periods while staying committed to your combined value and momentum strategy.

Conclusion

Key Takeaways

Splitting your portfolio evenly between value and momentum stocks – 50% for each – can improve your risk-adjusted returns. The trick lies in keeping separate portfolios for each strategy rather than combining them. This separation allows you to benefit from the relatively low correlation between value and momentum strategies, which stands at about 0.5301.

Studies reveal that this 50/50 allocation outperforms approaches that attempt to blend value and momentum criteria into a single stock selection process. For instance, from 1927 to 2015, this balanced strategy delivered a compound annual growth rate (CAGR) of 11.18%, surpassing the S&P 500’s 9.95% over the same period. Moreover, metrics like the Sharpe and Sortino ratios consistently favour the split allocation. Rebalancing your portfolio quarterly or annually can help optimise returns while keeping transaction costs manageable.

Risk management remains a cornerstone of this strategy. Tools like ATR-based stops help maintain consistent risk levels, while quality filters ensure that weaker companies are excluded, enhancing overall performance. As Cliff Asness, Co-founder of AQR Capital Management, aptly puts it:

The negative correlation between value and momentum strategies coupled with their high expected returns make a simple strategy of equally weighting a portfolio with value and momentum stocks powerful.

By following a systematic framework, traders can leverage these insights for more consistent results.

Next Steps for Traders

To integrate these strategies into your trading system, focus on refining your market timing and decision-making processes. Collin Seow Trading Academy’s Market Timing 101 e-course (https://collinseow.com) is a great resource for learning rule-based systems that eliminate emotional biases. For a deeper dive, consider enrolling in the Systematic Trader Programme, which offers comprehensive training on data-driven trading methods.

Additionally, “The Systematic Trader v.2” by Collin Seow is an excellent guide for building strategies tailored to Singapore’s unique market conditions. It covers practical aspects like local trading costs and Monetary Authority of Singapore (MAS) policy considerations. Structured learning combined with disciplined execution equips traders to adapt to market changes while staying focused on long-term goals.

FAQs

How many stocks should I hold in each portfolio?

When blending value and momentum strategies, there’s no one-size-fits-all answer, but holding 20 to 50 stocks is a common range for diversification and managing risk. Many investors find it effective to maintain separate portfolios for each strategy and rebalance them periodically. The exact number of stocks will depend on factors like your investment approach, portfolio size, and comfort with risk. Striking a balance ensures your portfolio stays diversified while aiming for solid returns.

What’s the best way to screen for value traps in Singapore stocks?

To avoid falling into value traps when evaluating Singapore stocks, it’s important to dig deeper than just low price-to-earnings (P/E) ratios. Pair these valuation metrics with a close look at the company’s financial health. Prioritise firms that maintain manageable debt levels, show positive earnings momentum, and deliver consistent profitability over time.

Beyond the numbers, consider how sustainable the company’s business model is. Does it have a solid foundation to weather market changes? Lastly, take into account local market trends and insights. This can help you spot stocks that might look appealing on the surface but are backed by weakening fundamentals.

How do I keep rebalancing costs low in Singapore?

To keep rebalancing costs low in Singapore, consider rebalancing less often to cut down on transaction fees. Look into investment options such as ETFs that come with automatic rebalancing features. Choosing low-cost index funds or ETFs can also help reduce your overall expenses. Instead of frequent trading, stick to rebalancing at set intervals or only when your asset allocations stray significantly from your target. This approach helps manage costs effectively while maintaining your investment strategy.