Do industries (stocks collectively grouped by the industries they belong to) exhibit momentum? Does going long the best few industries lead to out-performance?
Yes, in theory.
If you go long the 5 best industries by relative strength, you do end up outperforming the market.
Rebalance cap-weighted industry indices once in 4 weeks and stagger it to avoid rebalance timing luck and you have the basics of the strategy.
The implementation is the thorniest part. Unlike basic equity momentum where you can equal weight your positions and call it a day, running an equal-weighted strategy on cap-weighted industry indices is going to take some work. We took a crack at a basic version of it here: Industry Momentum. However, the backtest indicates that the trend component is stronger than the momentum component (probably why cap-weighting outperforms equal-weighting) and staggering rebalances matters. This makes the execution of this strategy a bit challenging.
Code and charts on github.