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Is it the Right Time to Invest in Momentum ETFs? Let's Explore
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The Wall Street ended the four-day week before the extended Independence Day weekend on a positive note with major indices gaining considerably. In fact, the Dow gained 3.3%, the S&P 500 was up 4%, while the Nasdaq rose 4.6% in the last week. The upside in the indices was observed despite record rise in the number of coronavirus cases in the United States. During the three-day-long weekend, around 120,000 new coronavirus infected cases were observed in the United States.
On a brighter note, U.S. manufacturing is showing signs of recovery. Notably, the manufacturing sector constitutes 12% of the U.S. GDP. On Jul 1, the Institute for Supply Management (ISM) reported that the U.S. manufacturing purchasing managers' index (PMI) jumped 9.5% to 52.6% in June (the highest since May 2019) from 43.1% in May and an 11-year low of 41.5% in April. Notably, any reading above 50 indicates expansion in manufacturing activities. The consensus estimate was 49.3%. Notably, 13 of the 18 industries tracked by ISM expanded in June.
There is some good news coming from the jobs market as well. The U.S. economy added 4.8 million jobs in June, marking the second consecutive month of gains and surpassing economists’ expectations of job gains of 2.9 million. The metric follows more than 20 million of job losses recorded in April due to the pandemic. The jobs growth in June also compares favorably with 2.7 million in May, which was revised upward by 190,000. Overall, the unemployment rate was 11.1% in the month of June, again better than the estimate of 12.4%.
Positive development in coronavirus vaccine research also fueled the Wall Street rally. Pfizer (PFE - Free Report) , which is working with its Germany-based partner BioNTech, informed that one of its four candidates for the coronavirus vaccine has successfully generated neutralizing antibodies in all participants, who were given two of the 10 or 30 microgram doses after 28 days (per a CNBC article). The company is aiming to start its mid-stage trial by as early as this month. It is worth noting here that Pfizer is targeting to produce up to 100 million doses by the end of this year and more than 1.2 billion doses by 2021-end (read: Biotech ETFs to Gain as Coronavirus Vaccine Hopes Strengthen).
Momentum ETFs in Focus
While the broader stock market is expected to gain on optimism surrounding the reopening of U.S. economy and positive developments in coronavirus vaccine research, momentum investing will likely take center stage as investors seek greater returns in the short term. Momentum investing looks to fetch profits from hot stocks that have shown an uptrend over the past few weeks or months. Here we present five ETFs that could outperform on the current market optimism. Further, these could beat broader market returns in the coming months if the optimism prevails.
This fund provides exposure to large and mid-cap stocks that exhibit relatively higher price momentum by tracking the MSCI USA Momentum Index. It charges 15 bps in fees per year and is a popular choice with AUM of $9.99 billion (read: High Momentum ETFs to Tap Now).
This fund tracks the Dorsey Wright Technical Leaders Index, which measures the performance of companies that demonstrate powerful relative strength characteristics. It has amassed $1.45 billion in its asset base and charges 62 bps in annual fees.
This ETF follows the S&P Midcap 400 Momentum Index, which is designed to identify mid-cap firms with the highest momentum scores. XMMO has AUM of $617.4 million and an expense ratio of 0.39%.
VictoryShares USAA MSCI USA Value Momentum ETF (ULVM - Free Report)
This fund tracks the MSCI USA Select Value Momentum Blend Index, offering exposure to large and mid-cap companies with higher exposure to value and momentum factors, while also maintaining a moderate turnover and lower realized volatility compared with the traditional capitalization weighted indices. It accumulated $465.8 million in AUM and charges 0.20% in expense ratio.
With AUM of $313 million, this product targets large-cap securities with a combination of core factors (high value, high quality and low size characteristics) and a focus factor comprising high momentum characteristics. It follows the Russell 1000 Momentum Focused Factor Index and charges an annual fee of 20 bps.
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Is it the Right Time to Invest in Momentum ETFs? Let's Explore
The Wall Street ended the four-day week before the extended Independence Day weekend on a positive note with major indices gaining considerably. In fact, the Dow gained 3.3%, the S&P 500 was up 4%, while the Nasdaq rose 4.6% in the last week. The upside in the indices was observed despite record rise in the number of coronavirus cases in the United States. During the three-day-long weekend, around 120,000 new coronavirus infected cases were observed in the United States.
On a brighter note, U.S. manufacturing is showing signs of recovery. Notably, the manufacturing sector constitutes 12% of the U.S. GDP. On Jul 1, the Institute for Supply Management (ISM) reported that the U.S. manufacturing purchasing managers' index (PMI) jumped 9.5% to 52.6% in June (the highest since May 2019) from 43.1% in May and an 11-year low of 41.5% in April. Notably, any reading above 50 indicates expansion in manufacturing activities. The consensus estimate was 49.3%. Notably, 13 of the 18 industries tracked by ISM expanded in June.
There is some good news coming from the jobs market as well. The U.S. economy added 4.8 million jobs in June, marking the second consecutive month of gains and surpassing economists’ expectations of job gains of 2.9 million. The metric follows more than 20 million of job losses recorded in April due to the pandemic. The jobs growth in June also compares favorably with 2.7 million in May, which was revised upward by 190,000. Overall, the unemployment rate was 11.1% in the month of June, again better than the estimate of 12.4%.
Positive development in coronavirus vaccine research also fueled the Wall Street rally. Pfizer (PFE - Free Report) , which is working with its Germany-based partner BioNTech, informed that one of its four candidates for the coronavirus vaccine has successfully generated neutralizing antibodies in all participants, who were given two of the 10 or 30 microgram doses after 28 days (per a CNBC article). The company is aiming to start its mid-stage trial by as early as this month. It is worth noting here that Pfizer is targeting to produce up to 100 million doses by the end of this year and more than 1.2 billion doses by 2021-end (read: Biotech ETFs to Gain as Coronavirus Vaccine Hopes Strengthen).
Momentum ETFs in Focus
While the broader stock market is expected to gain on optimism surrounding the reopening of U.S. economy and positive developments in coronavirus vaccine research, momentum investing will likely take center stage as investors seek greater returns in the short term. Momentum investing looks to fetch profits from hot stocks that have shown an uptrend over the past few weeks or months. Here we present five ETFs that could outperform on the current market optimism. Further, these could beat broader market returns in the coming months if the optimism prevails.
iShares Edge MSCI USA Momentum Factor ETF (MTUM - Free Report)
This fund provides exposure to large and mid-cap stocks that exhibit relatively higher price momentum by tracking the MSCI USA Momentum Index. It charges 15 bps in fees per year and is a popular choice with AUM of $9.99 billion (read: High Momentum ETFs to Tap Now).
Invesco DWA Momentum ETF (PDP - Free Report)
This fund tracks the Dorsey Wright Technical Leaders Index, which measures the performance of companies that demonstrate powerful relative strength characteristics. It has amassed $1.45 billion in its asset base and charges 62 bps in annual fees.
Invesco S&P MidCap Momentum ETF (XMMO - Free Report)
This ETF follows the S&P Midcap 400 Momentum Index, which is designed to identify mid-cap firms with the highest momentum scores. XMMO has AUM of $617.4 million and an expense ratio of 0.39%.
VictoryShares USAA MSCI USA Value Momentum ETF (ULVM - Free Report)
This fund tracks the MSCI USA Select Value Momentum Blend Index, offering exposure to large and mid-cap companies with higher exposure to value and momentum factors, while also maintaining a moderate turnover and lower realized volatility compared with the traditional capitalization weighted indices. It accumulated $465.8 million in AUM and charges 0.20% in expense ratio.
SPDR Russell 1000 Momentum Focus ETF (ONEO - Free Report)
With AUM of $313 million, this product targets large-cap securities with a combination of core factors (high value, high quality and low size characteristics) and a focus factor comprising high momentum characteristics. It follows the Russell 1000 Momentum Focused Factor Index and charges an annual fee of 20 bps.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>