Wall Street has been in decent shape in recent weeks on strong corporate earnings reports, slower-than-expected future Fed rate hikes and a bet that markets have reached a bottom. Stocks in the United States and Europe had their biggest monthly increase since November 2020 (read:
Stocks' Best Month Since 2020: Top ETF Areas of July).
Investors’ hope that slowing inflation and slowing growth may keep the Fed to ease plans to push up interest rates boosted equities throughout the month. Cheaper valuation after a downbeat first-half also aided equities.
The S&P 500, the Dow Jones, the Nasdaq Composite and the Russell 2000 added 8%, 5.6%, 11.4% and 9.1%, respectively in July (as of Jul 29, 2022). Some earnings came in upbeat to close out the month. Amazon.com Inc. and Apple Inc. both companies beat revenues estimates. In July, Amazon shares gained 27%, marking their biggest monthly rally since October 2009.
The rally in Wall Street came despite 41-year high inflation, GDP contraction for the second-straight quarter and yet another Fed rate hike worth 0.75%. Against this backdrop, investors can rely on high momentum investing. While the past movement of the price of a stock cannot be used to predict its future movement, history shows that recent past performance can be a pretty good predictor of short-term future performance.
The momentum effect, which refers to the tendency of winning stocks to keep winning, has been documented in many academic studies. Enthusiastic investors love to bet bigger on high fliers, even ignoring fundamentals at times. With investors’ optimism at its peak, we would like to note that the following momentum ETFs maybe tapped now.
Momentum investing might be an intriguing idea for those seeking higher returns in a short spell. It looks to reflect profits from buying stocks that are sizzling on the market. But looking at value is necessary now, given still-present inflationary threats.
Below we highlight a few momentum ETFs that have a P/E below 21.70 times of
SPDR S&P 500 ETF Trust ( SPY Quick Quote SPY - Free Report) . ETFs in Focus Cambria Value & Momentum ETF ( VAMO Quick Quote VAMO - Free Report) – P/E 8.01X
This ETF is active and does not track a benchmark. The Cambria Value and Momentum ETF seeks to preserve and grow capital from investments in the U.S. equity markets by investing in 100 stocks with market caps greater than US $200 million. The fund charges 64 bps in fees.
First Trust Dorsey Wright Momentum & Value ETF ( DVLU Quick Quote DVLU - Free Report) – P/E 9.06X
The underlying Dorsey Wright Momentum Plus Value Index tracks the overall performance of the 50 most undervalued stocks within the NASDAQ US Large Mid Cap Index that maintain high levels of relative strength. The fund charges 60 bps in fees.
Invesco S&P MidCap Value with Momentum ETF ( XMVM Quick Quote XMVM - Free Report) – P/E 10.77X
The underlying S&P MidCap 400 High Momentum Value Index is composed of securities with strong value characteristics selected from the Russell Midcap Index. The fund charges 39 bps in fees.
First Trust Dorsey Wright Momentum & Dividend ETF ( DDIV Quick Quote DDIV - Free Report) – P/E 12.55X
The underlying Dorsey Wright Momentum Plus Dividend Yield Index is designed to track the overall performance of the 50 stocks with the highest dividend yield comprising the NASDAQ US Large Mid Index that still maintain high levels of relative strength. The fund charges 60 bps in fees.
Invesco S&P 500 Value with Momentum ETF ( SPVM Quick Quote SPVM - Free Report) – P/E 13.11X
The underlying S&P 500 High Momentum Value Index is composed of securities with strong value characteristics selected from the Russell Top 200 Index. The fund charges 39 bps in fees.