The iShares Edge MSCI Momentum Factor ETF (MTUM), an $8.5 billion fund, rose 13.1% year-to-date through May 29, ahead of the 12.6% gain for the market-cap weighted iShares Core S&P 500 (IVV). At the end of April, MTUM was heavily weighted toward defensive health care (31% of assets vs. 14% for IVV) and consumer staples (13% and 7%). Meanwhile exposure to information technology (19% vs. 22%) and Industrials (3% vs 9%) was lighter than the broader market. Yet, due to MTUM’s rebalance in late May, the factor ETF is now positioned in a more pro-cyclical manner.
As of May 28, tech and industrial stocks represented 40% and 10% of MTUM assets, while health care and consumer staples shrunk to 12% and 8%, respectively. Though the tech sector has sold off in May, the index behind MTUM uses six and 12-months of price performance.
Shifting Sectors to What’s Hot
Source: Thomson Reuters Lipper, iShares website.
First Trust Dorsey Wright Focus 5 (FV) is another momentum-oriented ETF that outperformed, rising 14.5% in 2019. But while MTUM invests in stocks with strong price momentum, the $2.4 billion FV holds equal stakes in five sector or industry ETFs offered by First Trust with the best relative strength. The analysis used for FV is conducted twice monthly, but ETFs are replaced when they fall sufficiently out of favor, which helps to limit turnover.
In April, FV sold its stake in First Trust HealthCare AlphaDex (FXH), a sector fund well diversified across biotechnology (26% of assets), health care equipment & supplies (24%) and health care providers & services (18%) industries. Taking FXH’s place was First Trust Utilities AlphaDex (FXU), which has two-thirds of its assets in utilities, but one-third in communications services stocks such as AT&T (T) and CenturyLink (CTL).
The fully attached thematic research was originally published on MarketScope Advisor. To ensure that you continue to receive this and other relevant content from CFRA, please submit your contact details here.