When business sectors or specific stocks have market momentum behind tailwinds, it can be difficult to stop. Rather than identify specific sectors or names, an easier way could be exposure via the Fidelity Momentum Factor ETF (FDMO).
With momentum tailwinds blowing behind large-cap growth names, it’s easy to see why FDMO has been outpacing the Fidelity Quality Factor ETF (FQAL), Fidelity Value Factor ETF (FVAL), Fidelity Low Volatility Factor ETF (FDLO), and even the Fidelity US Multifactor ETF (FLRG). That’s not to say the other factor funds can’t fit into a portfolio, especially for investors looking for tailored exposure to single factors or a multi-factor option in the case of FLRG.
Encapsulate Momentum in 1 ETF
There are various technical metrics investors can use when trying to determine if momentum is in a stock’s favor. For example, the relative strength index (RSI) may discern whether a stock has reached overbought or oversold territory, thereby confirming strong momentum or a loss of it. Investors can use this tool as a screener, but the majority don’t have the requisite time to do copious amounts of research on their own. This is further exacerbated by the vast universe of stocks available for an investor to screen.
FDMO offers an easier way. Inherent in the fund are holdings of stocks that are already exhibiting strong momentum indicators. This is because the fund tracks the Fidelity U.S. Momentum Factor Index. In order for companies to be included in the index, they must exhibit momentum-based characteristics related to total returns (cumulative and volatility-adjusted), positive earnings-per-share (EPS) surprises, as well as low average short interest in the company. The latter can provide an indication of what short sellers are doing in the market, which could portend to future loss of momentum due to decreased sentiment for a specific stock.
Rather than stick to momentum-focused names in the large-cap space, FDMO’s universe also includes mid-caps. This gives FDMO an added growth component, as midcaps provide a balance of stability inherent in large-caps and a growth component related to small-caps.
Big Tech Tailwinds
One of the prime advantages of getting ETF exposure is the diversification it offers and the mitigation of concentration risk inherent in holding single stocks. Those who want select names in the Magnificent Seven, but only those that are exhibiting strong momentum, can use FDMO. All of these names find themselves in the top holdings of FDMO.
Right now, tailwinds are blowing in big tech’s direction, with the theme of artificial intelligence (AI) being a dominant factor. Companies like Nvidia, Microsoft, Amazon, and Meta have released strong earnings on the back of strong revenue streams, stemming from their AI-focused ambitions.
Nvidia has shown strong revenue generation with its focus on AI chips, which are in strong demand as more consumers and businesses use AI in daily operations. Microsoft and Amazon are building our their AI platforms, as well as cloud-based services that are also strong revenue streams. Meta is also investing heavily into building a “superintelligence” platform.
This all bodes well for FDMO, as its primed to capture this growth. With tailwinds firmly behind AI, these companies (and FDMO) could potentially benefit.
FDMO comes with a 0.16% expense ratio, making it a cost-effective option versus the ETF Database Category Average as well as the FactSet Segment Average.
For more news, information, and strategy, visit the ETF Investing Content Hub.
Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
1220207.1.0
