“MTUM has gotten off to a great start since inception in 2013. But it will be interesting to see how it performs when we eventually experience a sharper, longer-lasting stock market correction. Because of its excellent performance, it has been steadily building its assets under management which have grown about $1.5 billion in the last year. As long as the fund inflows into MTUM continue, this should benefit the ETF’s performance,” according to Seeking Alpha.

Since momentum strategies can overweight riskier stocks, the ETF could could underperform during another correction. Since defensive stocks typically do better during volatile conditions, the momentum strategy could load up on conservative picks and miss out on the initial recovery in riskier assets.

Additionally, momentum does not always mean increased volatility. MTUM’s three-year standard deviation of 9.8% is actually slightly below the comparable metric on the S&P 500.

For more on Smart Beta ETFs, visit the Smart Beta Channel home page.

Tom Lydon’s clients own shares of Apple and Microsoft.

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