With momentum stocks proving their mettle in 2017, investors may want to eschew stock-picking and consider smart beta exchange traded funds with an emphasis on the momentum factor, including the iShares MSCI USA Momentum Factor ETF (BATS: MTUM).
MTUM tracks large- and mid-cap U.S. stocks with relatively high price momentum. The underlying MSCI USA Momentum Index calculates the ratio of each stock’s price returns over the trailing 13 and seven months against volatility over the past three years. Companies are then weighted by their risk-adjusted momentum.
With MTUM, “you get exposure to large- and mid-cap US stocks exhibiting relatively high price momentum by tracking the MSCA USA Momentum Index which emphasizes stocks with high price momentum, but also maintains reasonably high trading liquidity, investment capacity and moderate index turnover,” according to a Seeking Alpha analysis of the ETF.
Investors often link momentum and growth stocks and while there are differences between the two investment factors, ETFs following those factors often have similar sector exposures. Notably, growth and momentum factors can and do expose investors to technology stocks. MTUM allocates over a third of its weight to that sector.
Financial services and consumer discretionary stocks combine for almost 38% of MTUM’s roster. Top 10 holdings in the ETF include Microsoft Corp. (NASDAQ: MSFT), Apple Inc. (NASDAQ: AAPL) and Nvidia Corp. (NASDAQ: NVDA).