Momentum stocks and ETFs have endured plenty of bumps and bruises this year, but the iShares Edge MSCI USA Momentum Factor ETF (MTUM) is higher by nearly 21% and some market observers believe more upside could be coming for the momentum factor later in the year.
MTUM seeks to track the performance of an index that measures the performance of U.S. large- and mid-capitalization stocks exhibiting relatively higher momentum characteristics, before fees and expenses. The fund offers exposure to large- and mid-cap U.S. stocks exhibiting relatively higher price momentum.
The fund provides index-based access to a specific factor which has historically driven a significant part of companies’ risk and return. Investors can use the fund to help manage exposure and risk within a stock allocation.
MTUM holds 124 stocks and while momentum is often associated with technology names (almost 39% of the fund’s weight), but the fund features some defensive positioning with 21% of its combined weight allocated to the healthcare and consumer staples sectors.
Pushing MTUM To Top Speed
Momentum investing can target those companies that are 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.
In fact, investors may want to consider MTUM as a complement to recently popular low volatility strategies for the remainder of the year.
“After a challenging start to the year, both minimum volatility and momentum stocks outperformed the broader market in the second quarter,” said BlackRock in a recent note. “This reinforces how investors are looking to build resilience in their portfolios, while not missing out on market rallies. Min-vol valuations appear stretched at this point, while momentum valuations appear supportive.”
MTUM has a three-year standard deviation of 12.50%, so in its own right, it’s not particularly volatile.
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