Smart beta, intelligent indexing and other derivatives of the non-cap weighted craze have received ample much attention this year in the ETF industry.
Intelligent indexing, fundamental indexing or smart beta ETFs also saw impressive growth this year. Although many of these ETFs have been around for more than seven years in some cases, the smart beta conversation intensified this year.
“Strategic Beta Equity funds gathered a record total of $61.3bn – nearly a third of this year’s global industry flows – with asset growth of over 40%. Dividend weighted- funds once again led Strategic Beta with $27.6bn of flows this year, more than double the $13.1bn collected in 2012. Many income-seeking investors have turned to dividend stocks as bond alternatives in a persistent low-interest rate environment,” noted BlackRock. [ETF Landscape: Smart Beta Shines]
ETF sponsors have sliced and diced the smart beta concept into ever finer points and one that has gained prominence is the idea of momentum-based funds. [Another Momentum ETF Tops $1 Billion in Assets]
Again, some momentum-based ETFs have been around for a few years, but there are new entrants to the fray that merit consideration, including the iShares MSCI USA Momentum Factor ETF (NYSEArca: MTUM). MTUM is part of three-ETF suite launched by iShares in April at the request of the Arizona State Retirement System, which seeded each fund with $100 million.
The head start with the help of the pension plan certainly helped, but MTUM has gained other fans, a fact confirmed by its $191.4 million in assets under management. That total makes MTUM one of 2013’s most successful new ETFs. [10 New ETFs Burst Out of the Gates]
“The benefit of MTUM is that it is specifically targeting stocks with positive price trends which it hopes will outperform over time. It will more than likely have exposure to stocks with higher volatility and beta in a fast moving market. I view this ETF as a vehicle for traders who want to capitalize on names with high growth potential as opposed to a high value proposition,” according to FMD Capital Management.
MTUM lives up to its billing as a momentum play with health care, consumer discretionary and technology combining for two-thirds of the fund’s sector weight. Low-beta consumer staples, utilities and telecom names combine for just 4.1% of the fund’s weight.
“MTUM can be implemented with more of a tactical mentality to access stocks with the strongest recent price trends,” notes FMD Capital.
Google (NasdaqGM: GOOG), Johnson & Johnson (NYSE: JNJ) and Facebook (NasdaqGM: FB) are the ETF’s top-three holdings and represent 14.5% of its weight. MTUM is up 17.5% since its April debut and is cost-efficient with annual fees of just 0.15%.
iShares MSCI USA Momentum Factor ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of Facebook and Google.