Last month, Vanguard, the second-largest U.S. issuer of exchange traded funds, added active ETFs to its stable of low-cost, passive products. The new additions to Vanguard’s suite of ETFs include five single factor funds and a multi-factor offering.
Among the single factor offerings is the Vanguard U.S. Momentum Factor ETF (Cboe: VFMO). VFMO seeks to provide long-term capital appreciation by investing in stocks with strong recent performance.
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. Momentum strategies are typically heavily allocated to the consumer discretionary and technology sectors, among others.
“The growth and momentum factors have been outpacing value for a while now, indicating that the Vanguard U.S. Momentum Factor ETF could be one of the new Vanguard ETFs for investors to consider in the near-term,” reports InvestorPlace. “With VFMO, investors should monitor semiconductor stocks, among other industries, because this new Vanguard fund features Micron Technology, Inc. (NASDAQ: MU), Nvidia Corporation (NASDAQ: NVDA) and Texas Instruments Incorporated (NASDAQ: TXN) among its top 10 holdings.”
VFMO holds 634 stocks with a median market value of $10.5 billion. In addition to its large technology and consumer discretionary exposure, the ETF allocates over 34 percent of its combined weight to consumer durables and healthcare names.
Momentum Investing Strategy Bets on Hot Stocks
The momentum strategy basically bets that hot movers will continue to rise, so investors would buy high and sell even higher. Investors who want to follow this momentum strategy will be betting on outperforming sectors flying even higher.
Momentum stocks often trade at higher valuations than broader equity benchmarks and that is true of VFMO. According to issuer data, the new fund has a price-to-earnings ratio of 24.4 and a price-to-book ratio of 4.3. The comparable metrics on the Russell 3000 Index are 21.7 and 3.0, respectively.
Keeping with Vanguard’s tradition of low fees, VFMO charges just 0.13% per year, or $13 on a $10,000 investment. That is the same annual expense ratio found on the firm’s other new active ETFs and it makes VFMO one of the least expensive momentum ETFs on the market, active or passive.
For more information on new fund products, visit our new ETFs category.