The explanation starts with the observation that many active equity stock pickers manage their risk by keeping their portfolios within certain tolerances as measured against the GICS industry sectors. We have also written on this topic in our paper on Return Chasing , and drawn a link with how this can result in short-term momentum in stock prices, followed by longer-term reversion to fair value. At Elm, we compute our simple measure of momentum by comparing the current value of an asset to its average over the past 12 months, taking into account inflation and a risk premium.