Most investors have heard the term momentum when applied to stocks. The momentum strategy is based on a simple idea, the theory about momentum states that stocks which have performed well in the past, should continue to perform well, while on the other hand, stocks which have performed poorly in the past, should continue to perform poorly.
High momentum stocks are those that are capable of rising very fast in a short period of time, which makes them very attractive to potential buyers. However, in many cases, these stocks can also crash unexpectedly and carry significant risks as a result. When handled properly, however, momentum trading can be a rewarding method of profiting from the stock market.
For investors looking for an ETF that has an allocation of momentum stocks, the iShares Edge MSCI USA Momentum Factor ETF (MTUM) may be of interest.
The iShares Edge MSCI USA Momentum Factor ETF 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 iShares Edge MSCI USA Momentum Factor ETF 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.
Since its inception in April 2013, the fund has outperformed other ETFs that tracked the S&P 500 Index, with a return of 128.7%, beating the iShares Core S&P500 ETF’s (IVV) performance of 79.3% for example.
Year-to-date the iShares Edge MSCI USA Momentum Factor ETF is up nearly 23%, and has a very modest expense ratio of only 0.15%, allowing investors to retain most of the gains. Some of the top holdings include Visa, Mastercard, Microsoft, Proctor & Gamble, Walt Disney, Cisco, and Starbucks.
One notable development with the iShares Edge MSCI USA Momentum Factor ETF is that analysts have detected an approximate $114.8 million dollar inflow, which equates to a 1.2% increase week over week in outstanding units (from 82,100,000 to 83,050,000). Large inflow often mean that investor interest in an ETF is waxing, and could portend a move in price.
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