The momentum factor has been a stellar performer this year and investors can access that popular investment factor with an array of exchange traded funds, including the Fidelity Momentum Factor ETF (NYSEArca: FDMO).
Momentum investing can target those companies that are exhibiting high levels of growth. The momentum factor selects company stocks that have recently outperformed based on the idea that “the trend is your friend” and that stock market leaders typically continue to outperform. This type of strategy can be an effective way for targeting growth-oriented companies since stocks with positive momentum often continue to generate strong earnings.
FDMO debuted about a year ago as part of six-ETF suite of smart beta offerings from Fidelity. 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.
The ETF tracks the Fidelity U.S. Momentum Factor Index, “which is designed to reflect the performance of stocks of large and mid-capitalization U.S. companies that exhibit positive momentum signals,” according to Boston-based Fidelity.
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. However, FDMO is performing admirably this year as it resides near record highs and is up more than 11%.