Virtus Managing Director and Chief Investment Strategist Joe Terranova, a name familiar to a slew of investors due to his appearances on CNBC programs including “Fast Money” and “The Halftime Report,” now has his own exchange-traded fund.
What Happened: The Virtus Terranova U.S. Quality Momentum ETF JOET, which tracks the Terranova U.S. Quality Momentum Index, debuted Wednesday, extending a brisk pace of new ETFs coming to market. As JOET's name implies, it marries two favored investment factors: momentum and quality.
JOET's index methodology “methodology reflects the investment philosophy Terranova has utilized throughout his career on Wall Street as a professional investor, risk manager, and trader,” according to Virtus.
Why It's Important: JOET could prove well-timed because the quality factor is on a tear again this year as investors embrace companies with strong credit ratings and tidy balance sheets amid the coronavirus pandemic. The MSCI USA Sector Neutral Quality Index is up 10% year-to-date.
Although quality isn't as easily defined as other investment factors, hallmarks often include strong balance sheets, sound, stable management teams and propensities for shareholder rewards via buybacks or dividends. JOET brings a refreshed approach to quality investing by adding momentum to the mix, a strategy legacy ETFs in the category don't feature.
“By optimizing exposure to securities with positively trending relative momentum that are also exhibiting fundamental strength – and rebalancing on a quarterly basis – creates the potential to capture more relevant market attributes which may contribute to a more consistent investment experience over time,” according to Virtus.
JOET's 125 components are equally weighted with momentum defined as a stock's 12-month total price return while quality is defined as robust return on equity growth, solid debt-to-equity ratios and three-year sales growth.
Equal weighting reduces single stock risk while marrying quality and momentum can reduce some of the volatility associated with the latter.
What's Next: Terranova joins CNBC colleagues Tim Seymour and Jon and Pete Najarian in the ETF fray. Seymour is the name behind the Amplify Seymour Cannabis ETF CNBS while the Najarian's issued the The Cannabis ETF THCX.
Terranova's JOET charges 0.29% per year, or $29 on a $10,000 investment.
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