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Momentum Factor ETF outshines peers with TSLA tailwind in Nasdaq frenzy

Jul. 21, 2020 3:32 PM ETiShares MSCI USA Momentum Factor ETF (MTUM), QQQ, XLKQQQ, XLK, MTUMBy: Vishesh Kumar, SA News Editor
  • The Nasdaq may be seeing its biggest momentum surge since the dot-com boom two decades ago.
  • But it's the iShares Edge MSCI USA Momentum Factor ETF (BATS:MTUM) that has now edged out peers over a frenzied month.
  • MTUM was up 9.74% over the last month. That beats out the 9.23% gain for the Invesco QQQ ETF (NASDAQ:QQQ), the 7.16% gain for the Technology Select Sector SPDR ETF (NYSEARCA:XLK), and the 4.97% gain for the S&P 500 over that time.
  • MTUM is a factor ETF that seeks to give investors exposure to stocks exhibiting relatively higher momentum characteristics. In other words, the fund buys more of stocks that are on the rise, and sells those that aren't keeping up. In addition to doing better during strong bull runs, the ETF theoretically should thus help cap downside risk.
  • Given the strong momentum for large cap tech stocks over the last month, MTUM has many of the same top holdings as the QQQ - Apple and Amazon, for example.

  • But it's MTUM's ability to dynamically shift to the stocks with the biggest tailwinds that may be giving it an edge. For example, MTUM now counts Tesla Motors as its third-largest holding with a 5.1% allocation, and Amazon as its largest position with a 5.6% allocation, according to iShares.

  • One month ago, Tesla was just its sixth-largest position at 3.7% exposure, and AMZN as its second-largest position at 5.3%.

  • It's been a year when the rich are getting richer, and if market tailwinds persist, MTUM may be a more nimble way to capture the upside than the major tech names and ETFs.

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