As broader benchmarks surged Tuesday, it wasn't surprising to see exchange traded funds dedicated to the momentum factor among the ETFs hitting all-time highs.
Over the past few years, it has felt as though the momentum factor hasn't gone out of style. Rather, momentum lulls have been minor breaks before the factor resumed its bullish ways and that's one of the the tenants of momentum: when it works, it can really work, but when it falls out of favor, it can do so in dramatic.
While there is that commonality, momentum ETFs arrive at the factor in different ways. Here's a trio that each hit all-time highs on Tuesday.
Alpha Architect U.S. Quantitative Momentum ETF (QMOM)
The Alpha Architect U.S. Quantitative Momentum ETF QMOM isn't just a momentum ETF. It's a high quality play on the factor and a focused one at that, as its roster is usually comprised of 40 to 50 stocks. QMOM screens for momentum on a 12-month basis and excludes the most recent month. Excluded from the ETF are stocks that had too many down days during that 12-month span.
None of QMOM's holdings exceed weights of 2.37% and while individual security concentration risk is minimal in this fund, it's overweight technology compared to other momentum ETFs, which are usually overweight that sector. Tech stocks represent 51% of QMOM's roster.
Overall, QMOM's approach to momentum is more quantitative and potentially more durable over the long-term than competing products that appear more simpler.
“There are several reasons we place such limits around the stocks to consider. A critical aspect involves liquidity, which is related to the size of the stocks under consideration,” according to an Alpha Architect research paper. “In general, if we include stocks that are too small, the possibility of large price moves on small volume can lead to significantly overstated theoretical returns relative to actual returns. In other words, if we include small stocks in our universe,potential returns could be higher,but these returns may be unobtainable in the real world, even when operating with small amounts of capital.”
See Also: Love This Cheap Dividend ETF
Fidelity Momentum Factor ETF (FDMO)
The Fidelity Momentum Factor ETF FDMO is more prosaic in its approach than the aforementioned QMOM, but it's still a credible momentum idea. FDMO follows the Fidelity U.S. Momentum Factor Index, “which is designed to reflect the performance of stocks of large and mid-capitalization U.S. companies that exhibit positive momentum signals,” according to Fidelity.
The Fidelity fund holds 125 stocks with none exceeding weights of 5.05%. Apple AAPL and Microsoft MSFT combine for about 10% and are the ETF's top two holdings.
Tech stocks account for about a quarter of FDMO's weights and, for the most part, the fund's sector weights don't deviated wildly from those found in the S&P 500.
Invesco S&P 500 Momentum ETF (SPMO)
The Invesco S&P 500 Momentum ETF SPMO is another straight forward approach to momentum and another member of the all-time club. SPMO, which turns 5 years old later this year, follows the S&P 500 Momentum Index.
The fund is home to 100 stocks with high momentum scores. Microsoft commands almost 11% of SPMO's weight and the ETF is overweight tech with an allocation of 32%.
SPMO is also one of the least expensive funds in this category, charging 0.13% per year, or $13 on a $10,000 investment.
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