Quality continues to deliver the goods this year and momentum remains a beloved ideas for investors. They can marry those concepts with the Virtus Terranova U.S. Quality Momentum ETF (NASDAQ: JOET), which debuted Wednesday.
The new ETF tracks the Terranova U.S. Quality Momentum Index (Ticker VTUSQM), which was created and developed by Joe Terranova, managing director at Virtus Investments and a featured guest on several CNBC programs.
“JOET may serve as a core equity holding in a diversified portfolio as the ETF strives to provide exposure to the best performing U.S. large-cap companies with the highest quality fundamental characteristics, resulting in a distinct portfolio built for long-term growth,” according to Virtus.
“The Trend Is Your Friend”
Momentum investing is rooted in the notion that securities on torrid paces will continue to thrive over the near-term. Long-term data for the momentum factor are compelling, but the factor can be volatile.
Momentum investing targets companies exhibiting high levels of growth. The momentum factor selects company stocks that have recently outperformed based on the idea that “the trend is your friend” and that stock market leaders typically continue to outperform. This type of strategy can be an effective way of targeting growth-oriented companies since stocks with positive momentum often continue to generate strong earnings.
The quality factor is more fluid, but can emphasize key indicators such as profitability, management efficiency, and cash flow.
While the quality factor often trades at a premium to value, quality stocks are usually less volatile than traditional broad market strategies, indicating some overlap with the low volatility factor.
The quality investment factor can help investors focus on companies that are better equipped to handle uncertainties the markets may throw at us, sifting out corporations with questionable profit outlooks and rising debt levels as a way to home in on those with solid fundamentals.
“JOET may serve as a core equity holding in a diversified portfolio as the ETF strives to provide exposure to the best performing U.S. large-cap companies with the highest quality fundamental characteristics, resulting in a distinct portfolio built for long-term growth,” noted Virtus. “With its quality momentum approach, JOET systematically seeks to identify and capture returns of high conviction investment opportunities characterized by fundamental (quality) and technical (momentum) attributes. It results in a portfolio of 125 equal stock weightings at the time of quarterly index rebalance to help ensure balance and diversification, while also attempting to reduce over-concentration, single event stock risk, and limitations, relative to traditional cap-weighted strategies.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.