However, MTUM is among the many momentum ETFs that prove momentum can mean much more than just a high beta from a sexy sector. Momentum can also mean an emphasis on relative strength and strong price characteristics. [Index Changes Lift These ETFs]
In MTUM’s case, this is how the momentum factor is applied: “At each rebalance, a risk-adjusted price momentum is calculated (defined as the excess return over the risk-free rate divided by the annualized standard deviation of weekly returns over thepast 3-years) for each security in the parent index over the trailing 6- and 12-month time period. The 6- and 12-month risk-adjusted price momentum scores are then standardized at +/-3 standard deviations and the standardized z-scores are translated into an average momentum score. Approximately 100-150 securities with the highest momentum scores are selected for inclusion in the Underlying Index,” says iShares. [Momentum Marriage in an ETF]
“A general reason for an investor selecting momentum stocks is that a stock with high momentum will keep following the trend for a longer time compared to other stocks. Momentum stocks also help easily identify a trend,” adds Market Realist.
iShares MSCI USA Momentum Factor ETF
