Momentum ETFs
A momentum ETF is an ETF that tracks an index that screens for stocks that have recently demonstrated price momentum. The belief is that once a stock starts to go up in price, there is a tendency for a stock to continue to go up in price, until something significant happens to reverse the trend. And the stock price will continue to go up, even if the stock price becomes ridiculously expensive in terms of traditional measures of value such as price per earnings. So the idea behind momentum investing is to merely pick "winners" and hold onto them, regardless of how expensive the stock has become.
In a perfectly functioning, logical financial market, momentum investing should not really work. But momentum investors believe there is a certain "herd mentality" effect that distorts the market, at least in the short term. But price momentum doesn't last forever. Inevitably, something will happen and yesterday's winners will become today's also rans. So the secret sauce to momentum investing is how to capture the "trend" before it reverses. Although the approaches vary, most momentum investors tend to buy stocks who have performed well during the past 6 or 12 months, and then only hold onto those stocks for a short period of time. So momentum strategies tend to be characterized by high portfolio turnover.
There are a large number of ETFs that use momentum as a factor in selecting or weighting stocks, as shown in this table:
| Name | Symbol | Last price | Currency |
|---|---|---|---|
| PowerShares DWA Industrials Momentum Portfolio | XNAS:PRN | 157.37 | USD |
| iShares Edge MSCI Intl Momentum Factor E | ARCX:IMTM | 37.32 | USD |
| INVESCO S&P EMERGING MARKETS | ARCX:EEMO | 16.43 | USD |
| PowerShares DWA Energy Momentum Portfolio | XNAS:PXI | 43.16 | USD |
| PowerShares DWA Consumer Cyclicals Momentum Portfolio | XNAS:PEZ | 100.87 | USD |
| PowerShares DWA Momentum Portfolio | XNAS:PDP | 109.73 | USD |
| INVESCO DWA DEVELOPED MARKET | XNAS:PIZ | USD | |
| Pacer Lunt Large Cap Multi-Factor Alternator ETF | ARCX:PALC | 49.66 | USD |
| Arrow DWA Country Rotation ETF | BATS:DWCR | 28.03 | USD |
| INVESCO S&P 500 MOMENTUM ETF | ARCX:SPMO | 95.58 | USD |
| JPMORGAN US MOMENTUM FACTOR | ARCX:JMOM | 59.07 | USD |
| PowerShares DWA Financial Momentum Portfolio | XNAS:PFI | 57.98 | USD |
| STRATEGY SHARES NEWFOUND/RES | BATS:ROMO | 32.05 | USD |
| INVESCO S&P SMALLCAP MOMENTU | ARCX:XSMO | 66.56 | USD |
| First Trust Dorsey Wright DALI 1 ETF | XNAS:DALI | 26.18 | USD |
| PowerShares DWA Healthcare Momentum Portfolio | XNAS:PTH | 40.80 | USD |
| HCM DEFENDER 500 INDEX ETF | ARCX:LGH | 52.74 | USD |
| Pacer Lunt MidCap Multi-Factor Alternator ETF | ARCX:PAMC | 46.88 | USD |
| INVESCO DWA EMERGING MARKETS | XNAS:PIE | USD | |
| PowerShares DWA Utilities Momentum Portfolio | XNAS:PUI | 39.09 | USD |
| Pacer Lunt Large Cap Alternator ETF | ARCX:ALTL | 37.45 | USD |
| INVESCO DWA SMALLCAP MOMENT | XNAS:DWAS | USD | |
| INVESCO DWA TECHNOLOGY MOMEN | XNAS:PTF | USD | |
| ProShares Nasdaq-100 Dorsey Wright Momentum ETF | XNAS:QQQA | 46.20 | USD |
| First Trust Dorsey Wright Dynamic Focus | XNAS:FVC | 36.94 | USD |
| INVESCO DWA BASIC MATERIALS | XNAS:PYZ | USD | |
| Pacer WealthShield | BATS:PWS | 31.10 | USD |
| Invesco S&P Intl Developed Momentum ETF | XNYS:IDMO | 40.59 | USD |
| INVESCO S&P MIDCAP MOMENTUM | ARCX:XMMO | 124.66 | USD |
| iShares Edge MSCI USA Momentum Factor ET | BATS:MTUM | 209.11 | USD |
| PowerShares DWA Consumer Staples Momentum Portfolio | XNAS:PSL | 106.37 | USD |
| HCM DEFENDER 100 INDEX ETF | ARCX:QQH | 68.71 | USD |
| ETRACS 2x Leveraged MSCI US Momentum Factor TR ETN | ARCX:MTUL | 29.29 | USD |
| SPDR S&P 1500 Momentum Tilt ETF | ARCX:MMTM | 262.60 | USD |
Momentum ETFs use different approaches to selecting stocks based on price momentum.
MTUM, the iShares MSCI USA Momentum Factor ETF, is one of the largest momentum ETFs, and follows the MSCI USA Momentum Index. A momentum value is determined for each stock in the MSCI USA Index (about 625 mid and large cap stocks) by combining the stock’s recent 12-month and 6-month local price performance. This momentum value is then risk-adjusted to determine the stock’s momentum score. A fixed number of securities with the highest momentum scores are included in each MSCI Momentum Index, or about 125 stocks. The 125 stocks are weighted by the product of their momentum score and their market cap.