A Winning Smart Beta Momentum ETF Play

The momentum is a star among individual investment factors this year. Just look at the iShares MSCI USA Momentum Factor ETF (CBOE: MTUM), which is up more than 35% year-to-date, well ahead of the 18% returned by the S&P 500.

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.

The $5.1 billion ETF holds 125 stocks. MTUM debuted in April 2013.

“All the major equity factor strategies are posting solid gains for the one-year trend through yesterday’s close (Dec. 6), which makes momentum’s run all the more impressive. Indeed, the strategy’s return edge over the rest of the field has continued to accelerate since our update a month ago,” according to a Seeking Alpha analysis on MTUM and the momentum factor.

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 devotes nearly 38% of its weight to the technology sector and almost 21% to financial services stocks.