Animal Spirits Podcast Summary

Episode: Talk Your Book: Value + Momentum: The Best of Both Factors
Hosts: Michael Batnick, Ben Carlson
Guest: Lance Humphrey, Head of Portfolio Management at Victory Shares & Victory Capital
Date: October 20, 2025

Overview of the Episode

In this episode, Michael Batnick and Ben Carlson interview Lance Humphrey from Victory Capital to explore the nuanced strategies behind combining value and momentum investing factors. The discussion addresses the importance of balancing quantitative, rules-based approaches with intuitive investor preferences and touches on how this dynamic plays out in both US and international markets. Listeners gain insight into the mechanics of Victory’s value-momentum suite, how factor investing works, and practical implications for constructing resilient portfolios.

Key Discussion Points & Insights

1. The Momentum Factor: Origins, Myths, and Modern Relevance

• [00:43] Ben recounts Eugene Fama (father of the Efficient Market Hypothesis) citing momentum as perhaps the “most robust factor.” Despite its proven track record, momentum funds are much smaller than value funds.

  • Quote: “MTUM is probably the biggest momentum fund... about 19 billion. The Vanguard Value Index Fund VTV has 150 billion.” — Ben Carlson [01:31]

• Many non-quants confuse momentum with simple performance-chasing. Real, systematic momentum looks at specific periods (e.g., prior 6-12 months) and is quantitatively distinct from just owning an index fund.

  • “No, the quant people would say, absolutely not.” — Michael Batnick [01:56]

2. Implementing Momentum & the Value-Momentum Composite

• [03:21] Lance explains that pure momentum can lead to overconcentration in overvalued stocks—like current market favorites in AI—with high crash risk.

  • Quote: “Oftentimes the valuations are off the charts…momentum by itself historically…can lead to catastrophic crashes where you might have stocks that are trading at 2, 300 times PEs, but they have good momentum.” — Lance Humphrey [03:39]

• Victory’s approach is to blend momentum and value, targeting stocks that are trending well but still have reasonable valuations—especially important given today’s vast gap between value and momentum stocks.

3. Building a Value-Momentum Portfolio: Methods and Analogies

• [04:58] Lance analogizes factor blending using basketball: Instead of building a team full of only the tallest or fastest players (“a team of Yao Mings and Mugsy Bogues”), seek the all-around talents like Michael Jordan or Kobe Bryant—stocks strong in both value and momentum.

  • Memorable moment: “We want to find the Michael Jordans and Kobe Bryant’s…share attributes of both.” — Lance Humphrey [05:16]

• Simultaneous integration is key—don't filter by value, then by momentum, or vice versa; blend both criteria at the same time.

4. The Psychology Behind Value’s Popularity

• Value is more intuitive and easier to sell to investors (“We’re finding bargains”), whereas explaining systematic momentum investing is a tougher pitch.
  • Quote: “It’s hard to raise money by saying…we buy the stocks that have gone up the most in the last nine months, adjusted for volatility.” — Michael Batnick [08:37]
  • Quote: “We’re all hardwired to try to find a bargain. We’re not necessarily hardwired to try to find something that has done well in the past.” — Lance Humphrey [07:07]

5. Portfolio Construction: Value and Momentum in Practice

• [09:45] The process is not about strict sequencing (value, then momentum), but balancing both equally:

  • “It doesn’t have to be cheap and then momentum; it could be high momentum and pretty good valuation…we’re simply averaging those two scores independently.” — Lance Humphrey [09:45]

• [10:47] The strategy is sector neutral, preventing concentration in trendy sectors and mitigating risk during market extremes, like the 2022 bear market.

6. The Value-Momentum Suite: Products & Regional Variations

• [12:11] Victory offers four regional products: US large cap, US small/mid, international developed, and emerging markets.

• Value and momentum factors typically work in tandem across geographies, but notable exceptions exist (e.g., value working overseas but not in recent US markets due to “Mag 7” dominance).

  • Quote: “The US particularly large cap is in a world of its own...the Mag 7 is really distorting the US market.” — Lance Humphrey [13:27]

7. Defining Value and Momentum Metrics

• [14:33] Value is assessed with a composite of three metrics: price-to-book, enterprise-to-cash-flow, and price-to-earnings, each from different financial statements to ensure robustness.

• [20:06] Momentum is defined by averaging 6- and 12-month returns and adjusting for volatility (favoring smooth, consistent trends over sudden spikes).

8. Portfolio Construction Rules:

• [15:59] Stock selection: Top 25% of the universe based on value-momentum composite, balancing factor purity with diversification.
• [16:57] Weighting: Equal risk contribution (not simply equal weight or market cap), adjusting for volatility to prevent risk concentration in a few names.
  • Analogy: Comparing choices of a volatile crypto stock vs. a boring consumer staple, risk-adjusted weights are preferred over equal or market-cap weights.

9. Rules, Rebalancing & Turnover

• [21:25] The portfolio is entirely systematic, governed by transparent, rule-based indices.
• [25:58] Turnover is driven mainly by momentum changes (as it's a faster-moving signal), with “buffers” to prevent excessive trading (stocks are not dropped for nudging just outside the top percentile).

10. The Chameleon Nature of Momentum

• [23:31] Momentum isn't synonymous with growth; it can shift to any sector, even defensive or value names, depending on what’s working.
  • Quote: “Momentum is not necessarily growth. There's times where the momentum is in value stocks.” — Lance Humphrey [24:14]

11. Role in a Portfolio

• [27:41] Victory’s value-momentum strategies can be used as either core or satellite holdings, but Lance argues they’re robust enough for core allocations.
  • Quote: “I think about value and momentum more as a core holding within a portfolio.” — Lance Humphrey [27:52]

Memorable Quotes & Timestamps

• “Fama…he said it's momentum, which is interesting.” — Ben Carlson [00:43]
• “Momentum is having a moment.” — Michael Batnick [02:47]
• “Momentum by itself…can lead to catastrophic crashes.” — Lance Humphrey [03:39]
• “We want to find the Michael Jordans and Kobe Bryant’s…share attributes of both.” — Lance Humphrey [05:16]
• “We’re all hardwired to try to find a bargain…not necessarily hardwired to try to find something that has done well in the past.” — Lance Humphrey [07:07]
• “It’s hard to raise money by saying…we buy the stocks that have gone up the most in the last nine months, adjusted for volatility.” — Michael Batnick [08:37]
• “Momentum is not necessarily growth…momentum can move…it can become value, it can become low vol, it can become smaller size.” — Lance Humphrey [24:14]

Notable Segment Timestamps

| Timestamp | Topic/Quote | |-----------|----------------------------------------------------------------| | 00:43 | Momentum as the “most robust factor” – Fama’s observation | | 03:21 | Risks of pure momentum strategies (valuation blowups) | | 04:58 | Basketball analogy for blending factors | | 07:07 | Value’s intuitive appeal vs. momentum | | 09:45 | How the composite value-momentum process works | | 14:33 | Choice and justification of value metrics | | 15:59 | Importance of weighting & diversification | | 20:06 | Defining and measuring momentum | | 23:31 | Momentum’s “chameleon” nature | | 27:52 | Value-momentum as a core vs. satellite holding |

Conclusion

This episode provides a comprehensive look at how modern quantitative investing reconciles the historical appeal of value with the proven performance of momentum. Lance Humphrey breaks down both the practical and psychological factors influencing these strategies, underscoring why a systematic blend can offer powerful diversification and adaptability—across asset classes, geographies, and market regimes. The discussion is peppered with memorable analogies and clear explanations, making it valuable listening for seasoned investors and newcomers alike.

For more on Victory’s value-momentum investing strategies, visit vcm.com.