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Some Momo From A New Momentum ETF

November 2, 2015 11:11 am
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The number of exchange traded funds rooted in the momentum factor continues proliferating, though that may not be a surprise at a time when the momentum factor is outpacing its value counterpart. Even with the increased population of such ETFs, momentum remains arguably one of the most critiqued investment factors.

While the momentum factor has shown long-term durability against traditional broad market indexes, some ETFs have a way of over-complicating the factor (along with other investment factors), so perhaps the best application of momentum among ETFs is a simple approach. Enter the newly minted PowerShares S&P 500 Momentum Portfolio (NYSE: SPMO).

Just as the popular PowerShares S&P 500 Low Volatility Portfolio (NYSE: SPLV) tracks the 100 S&P 500 with the lowest trailing 12-month volatility, the PowerShares S&P 500 Momentum Portfolio is currently home to 101 S&P 500 stocks displaying favorable momentum scores.

Related Link: This Emerging Markets ETF Can Deal With The Strong Dollar

PowerShares, the fourth-largest U.S. issuer of exchange traded funds, knows a little something about momentum-based ETFs. The company is the issuer behind the $1.9 billion PowerShares DWA Momentum Portfolio (NYSE: PDP), a lineup of momentum-driven sector ETFs that are swelling in size and the PowerShares DWA Tactical Sector Rotation Portfolio (NASDAQ: DWTR), which has needed less than a month of trading to haul in $42.6 million in assets under management.

For its part, SPMO has, at the top, an expected look for a momentum ETF. Nearly 61 percent of the ETF's combined sector weight is allocated to consumer discretionary and healthcare names. There are, however, some surprises. For example, despite SPMO's 27.3 percent healthcare weight, the ETF holds just three biotech stocks, which combine for just 5.5 percent of the ETF's weight.

Additionally, consumer staples, a sector not often associated with momentum, is SPMO's third-largest sector weight at 17.4 percent. That serves as a reminder that momentum is more about price action than mere identification of so called glamorous or sexy stocks. On that note, SPMO's technology weight is just 11 percent and few of the ETF's tech holdings can be classified as glamorous or glitzy.

Investors in search of discretionary sector momentum need fret. SPMO is home to a nearly 6 percent weight to Amazon.com, Inc. (NASDAQ: AMZN) as well as several of the best-performing discretionary stocks from the Dow Jones Industrial Average.

Due to the laggard status of or lack of momentum displayed by energy, industrial and materials stocks, those sectors combine for just 6.4 percent of SPMO's weight. The ETF charges 0.25 percent per year, or $25 for every $10,000 invested.

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