An Effective Way for ETF Investors to Capture Future Earnings Growth

With the U.S. equities market pushing higher on a stronger economy and company earnings, investors may look to a momentum exchange traded fund to capture further growth ahead.

For instance, the Fidelity Momentum Factor ETF (NYSEArca: FDMO) has gained 10.2% year-to-date, compared to the S&P 500’s 9.5% rise.

FDMO includes large- and mid-cap U.S. companies that exhibit positive momentum signals. Companies include those with historically high total and volatility-adjusted returns, high positive earnings surprises and low average short interest.

“Momentum investing involves selecting stocks that have recently outperformed, based on the idea that ‘the trend is your friend’ and that stock market leaders often continue to outperform,” Fidelity Investments analysts, led by Darby Nielson, said in a research note.

Some believe that investors usually insufficiently react to improving fundamentals, such as earnings growth or company trends. The equities market, though, tends to follow earnings trends, and it’s usually not until a company stock is outperforming that investors begin to jump on the bandwagon. Consequently, this phenomenon allows a momentum investing style to invest high and sell higher.