June has a reputation for being a rough month for stocks. Investors willing to bet that June will be different may want to consider momentum strategies such as the iShares Edge MSCI USA Momentum Factor ETF MTUM.
MTUM is up about 10.5 percent year-to-date and is CFRA Research's focus ETF for the month of June.
What Happened
“The index behind this ETF follows what we would refer to as a 'let-your-winners-run' approach, supported by academic research,” said CFRA Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Monday. “Stocks are included if they have exhibited strong price momentum and the index is rebalanced on a semi-annual basis. Unlike some of iShares factor ETFs, there are no sector bands and there can be significant over- or underweights relative to more diversified ETFs.”
Year-to-date, investors have added $3.17 billion in new capital to MTUM, making the fund the ninth-best ETF in terms of new assets added. MTUM is by far the top asset adder this year among factor-based ETFs.
Why It's Important
MTUM turned five years old in April and in that time, the fund has rapidly become a benchmark among momentum strategies. Investors' willingness to embrace MTUM this year could be a sign market participants are betting on more upside for growth sectors, such as consumer discretionary and technology. Those are MTUM's two largest sector weights and combine for nearly 60 percent of the fund's roster.
“CFRA thinks technology sector earnings growth expectations for 2018 and 2019 are significantly underestimating the potential of the sector,” said Rosenbluth. “Tech sector companies have consistently beat expectations in each of past seven quarters, yet recently 2019 earnings growth forecasts remained below the S&P 500 index.”
Top 10 holdings in MTUM beloved growth names such as Amazon.com, Inc. AMZN and Netflix, Inc. NFLX.
What's Next
While stocks like Amazon and Netflix are often viewed as expensive, there is a different perspective on MTUM's 125-stock lineup in aggregate.
“Based on our research, MTUM’s holdings are appealing from both a valuation and risk perspective,” said Rosenbluth.
CFRA has an Overweight rating on MTUM.
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