By David Fabian
Most traders tend to seek out stocks that are exhibiting positive momentum trends in order to capitalize on price strength over short periods of time. There are a number of different screens and analysis profiles that you can implement to find these stocks, but an innovative ETF was introduced last year that does the work for you.
The iShares MSCI USA Momentum Factor ETF (NYSEARCA:MTUM) is designed to choose a subset of large and mid-cap stocks that have the highest excess returns over the last 6 and 12-month time frames. Each stock in the index is assigned a momentum score based on this analysis and then weighted according to market cap. The end result is a basket of approximately 125 high growth stocks that tend to be market leaders.
The benefit of MTUM is that it is specifically targeting stocks with positive price trends which it hopes will outperform over time. It will more than likely have exposure to stocks with higher volatility and beta in a fast-moving market.
This ETF can potentially be used as a tactical vehicle for traders who want to capitalize on companies with high growth potential, as opposed to value characteristics. The primary sector concentration is focused in healthcare, consumer discretionary and technology names. Right now the top three holdings in MTUM include: Facebook (NASDAQ:FB), Google (NASDAQ:GOOG) and Johnson & Johnson (NYSE:JNJ).
In addition, the fund charges a very modest expense ratio of just 0.15 percent to achieve its stated objective. Considering the complexity of the underlying strategy, this is a very reasonable fee when compared to similar "smart beta" ETFs in the marketplace that carry much higher expense ratios.
During the month of March, MTUM tumbled 3.43 percent as investors pulled back their appetite for risk and moved to defensive sectors. However, with the broader market surging to new highs in the first trading days of April, this ETF has regained its footing and appears to be making positive headway.
As the market evolves and new leaders emerge, the underlying holdings in MTUM will adapt according to their recent performance and market cap. This ETF is certainly one to watch as a proxy for traders and aggressive investors that want exposure to these fast-moving stocks.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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