Based on our research, MTUM’s holdings are appealing from both a valuation and risk perspective. The ETF earns a favorable rating input based on CFRA STARS, our qualitative, forward-looking assessment of the holdings, and on S&P Global Market Intelligence Quality Rankings, a review of the historical earnings and dividend record. Using the iShares Factor Box tool on the firm’s website, which can be used to understand the factor traits of many iShares and competing funds, MTUM offers strong momentum and quality characteristics, but weak value and low size traits.
Technology holdings include Cisco Systems (CSCO) and Intel (INTC), both CFRA Buy recommendations, as well as Microsoft (MSFT) and Mastercard (MA 191), both with above-average A- S&P Quality Rankings.
Within financials, CFRA Strong Buy recommended Bank of America (BAC) and Buy recommended JPMorgan Chase (JPM) were among the larger positions. CFRA Equity Analyst Ken Leon has a positive fundamental outlook for the Diversified Banks sub-industry, which includes BAC and JPM. Public policy reform of bank regulation is a key factor in CFRA’s positive view, and in April the Federal Reserve Bank issued proposals to simplify its capital rules for banks with revisions to its stress test rules.
Meanwhile, Amazon.com (AMZN) is the largest consumer discretionary stock in the portfolio. CFRA has a Buy recommendation on AMZN, expecting further domestic market share gains and potentially significant upside across several international markets from the rapidly growing Amazon Web Services business.
From a fund perspective, MTUM is also highly appealing to CFRA. The ETF is trading with bullish technical tendencies, with its price above its 200-day moving average. Meanwhile, the ETF has a modest 0.15% expense ratio and trades nearly 1 million shares daily with a tight penny bid/ask spread.
CFRA is presenting at the Inside Smart Beta conference in New York in early June to provide our take on the latest products. We think adoption of smart beta ETFs such as MTUM will continue to climb as advisors and investors become more aware of what’s inside these strategies.
Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.