Momentum ETFs
A momentum ETF is an ETF that tracks an index that screens for stocks that have recently demonstrated price momentum. The belief is that once a stock starts to go up in price, there is a tendency for a stock to continue to go up in price, until something significant happens to reverse the trend. And the stock price will continue to go up, even if the stock price becomes ridiculously expensive in terms of traditional measures of value such as price per earnings. So the idea behind momentum investing is to merely pick "winners" and hold onto them, regardless of how expensive the stock has become.
In a perfectly functioning, logical financial market, momentum investing should not really work. But momentum investors believe there is a certain "herd mentality" effect that distorts the market, at least in the short term. But price momentum doesn't last forever. Inevitably, something will happen and yesterday's winners will become today's also rans. So the secret sauce to momentum investing is how to capture the "trend" before it reverses. Although the approaches vary, most momentum investors tend to buy stocks who have performed well during the past 6 or 12 months, and then only hold onto those stocks for a short period of time. So momentum strategies tend to be characterized by high portfolio turnover.
There are a large number of ETFs that use momentum as a factor in selecting or weighting stocks, as shown in this table:
| Name | Symbol | Last price | Currency | AUM | Expense ratio, % | Inception date |
|---|---|---|---|---|---|---|
| Arrow Investments Trust Arrow DWA Country Rotation ETF | BATS:DWCR | 32.48 | USD | Dec 29, 2017 | ||
| First Trust Dorsey Wright DALI 1 ETF | XNAS:DALI | 29.57 | USD | May 15, 2018 | ||
| Pacer WealthShield ETF | BATS:PWS | 33.25 | USD | Dec 12, 2017 | ||
| Invesco S&P International Developed Momentum ETF | XNYS:IDMO | 41.19 | USD | Feb 24, 2012 | ||
| SPDR S&P 1500 Momentum Tilt ETF | ARCX:MMTM | 303.72 | USD | Oct 24, 2012 | ||
| First Trust Dorsey Wright Dynamic Focus 5 ETF | XNAS:FVC | 42.25 | USD | Mar 18, 2016 | ||
| iShares MSCI USA Momentum Factor ETF | BATS:MTUM | 299.71 | USD | Apr 18, 2013 | ||
| iShares MSCI Intl Momentum Factor ETF | ARCX:IMTM | 53.32 | USD | Jan 27, 2015 | ||
| Invesco S&P MidCap Momentum ETF | ARCX:XMMO | 153.17 | USD | Mar 03, 2005 | ||
| Invesco S&P SmallCap Momentum ETF | ARCX:XSMO | 84.15 | USD | Mar 03, 2005 | ||
| Invesco Dorsey Wright Basic Materials Momentum ETF | XNAS:PYZ | 124.36 | USD | Oct 12, 2006 | ||
| Invesco Dorsey Wright Utilities Momentum ETF | XNAS:PUI | 44.17 | USD | Oct 26, 2005 | ||
| Invesco Dorsey Wright Consumer Cyclicals Momentum ETF | XNAS:PEZ | 98.14 | USD | Oct 12, 2006 | ||
| Invesco Dorsey Wright Technology Momentum ETF | XNAS:PTF | 97.08 | USD | Oct 12, 2006 | ||
| Invesco Dorsey Wright Momentum ETF | XNAS:PDP | 133.80 | USD | Mar 01, 2007 | ||
| Invesco Dorsey Wright Industrials Momentum ETF | XNAS:PRN | 199.07 | USD | Oct 12, 2006 | ||
| Invesco Dorsey Wright Healthcare Momentum ETF | XNAS:PTH | 61.07 | USD | Oct 12, 2006 | ||
| Invesco Dorsey Wright Financial Momentum ETF | XNAS:PFI | 62.62 | USD | Oct 12, 2006 | ||
| Invesco Dorsey Wright Energy Momentum ETF | XNAS:PXI | 63.06 | USD | Oct 12, 2006 | ||
| Invesco Dorsey Wright Consumer Staples Momentum ETF | XNAS:PSL | 115.42 | USD | Oct 12, 2006 | ||
| Invesco S&P Emerging Markets Momentum ETF | ARCX:EEMO | 22.24 | USD | Feb 24, 2012 | ||
| Invesco S&P 500 Momentum ETF | ARCX:SPMO | 146.78 | USD | Oct 09, 2015 | ||
| Invesco Dorsey Wright SmallCap Momentum ETF | XNAS:DWAS | 110.45 | USD | Jul 19, 2012 | ||
| Invesco Dorsey Wright Emerging Markets Momentum ETF | XNAS:PIE | 34.04 | USD | Dec 28, 2007 | ||
| Invesco Dorsey Wright Developed Markets Momentum ETF | XNAS:PIZ | 53.80 | USD | Dec 28, 2007 | ||
| JPMorgan U.S. Momentum Factor ETF | ARCX:JMOM | 82.59 | USD | Nov 09, 2017 | ||
| HCM Defender 500 Index ETF | ARCX:LGH | 66.33 | USD | Oct 10, 2019 | ||
| HCM Defender 100 Index ETF | ARCX:QQH | 84.02 | USD | Oct 10, 2019 | ||
| Strategy Shares Newfound/ReSolve Robust Momentum ETF | BATS:ROMO | 34.82 | USD | Nov 04, 2019 | ||
| Pacer Lunt Large Cap Alternator ETF | ARCX:ALTL | 46.59 | USD | Jun 25, 2020 | ||
| Pacer Lunt MidCap Multi-Factor Alternator ETF | ARCX:PAMC | 54.42 | USD | Jun 25, 2020 | ||
| Pacer Lunt Large Cap Multi-Factor Alternator ETF | ARCX:PALC | 58.20 | USD | Jun 25, 2020 | ||
| ProShares Nasdaq-100 Dorsey Wright Momentum ETF | XNAS:QQQA | 70.91 | USD | May 20, 2021 | ||
| ETRACS 2x Leveraged MSCI US Momentum Factor TR ETN | ARCX:MTUL | 58.08 | USD | Feb 05, 2021 |
Momentum ETFs use different approaches to selecting stocks based on price momentum.
MTUM, the iShares MSCI USA Momentum Factor ETF, is one of the largest momentum ETFs, and follows the MSCI USA Momentum Index. A momentum value is determined for each stock in the MSCI USA Index (about 625 mid and large cap stocks) by combining the stock’s recent 12-month and 6-month local price performance. This momentum value is then risk-adjusted to determine the stock’s momentum score. A fixed number of securities with the highest momentum scores are included in each MSCI Momentum Index, or about 125 stocks. The 125 stocks are weighted by the product of their momentum score and their market cap.