Here's Why You Should Invest in Momentum ETFs Now

Sweta Jaiswal, FRM

The Wall Street has been rallying post the Memorial Day weekend as investors stay optimistic about the United States’ reopening of the economy. All the 50 states have begun the process of reopening by gradually lifting social distancing and lockdown measures that were imposed to combat the pandemic. In fact, the S&P 500 has bounced back to its 3,000 level, with Wall Street rallying this quarter.

Positive developments in coronavirus vaccine research are also fueling the Wall Street rally. In the current scenario, the White House’s top infectious disease expert, Dr. Anthony Fauci, recently said that it is “conceivable” that a coronavirus vaccine will be available in the United States by December, per a CNBC article. Furthermore, President Trump recently formed a federal task force in charge of a $10-billion effort with the aim to produce and extensively distribute a coronavirus vaccine by the end of 2020 (per a CNBC article).

Adding to the optimism, Novavax NVAX recently announced that it has enrolled the first set of patients in a phase I/II clinical study of its coronavirus vaccine candidate, NVX-CoV2373, on May 25. The study is being conducted in two parts. Preliminary data from the phase I portion of the study is expected in July and the phase II portion is expected to start rapidly if the phase I data is promising.

Confidence of Americans in the country's economy has also moved up in May, largely on optimism over businesses and stores reopening across the United States. In this regard, the Conference Board reported a spike in consumer confidence among Americans for May. The index improved to 86.6 in the month, marking an increase from 85.7 in the previous month. In fact, this is the first time the index rose since its decline in March and April.

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

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 $9.38 billion (read: High Momentum ETFs to Tap Now).

Invesco DWA Momentum ETF PDP

This fund tracks the Dorsey Wright Technical Leaders Index, which measures the performance of companies that demonstrate powerful relative strength characteristics. It has amassed $1.39 billion in its asset base and charges 62 bps in annual fees.

Invesco S&P MidCap Momentum ETF XMMO

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 $555.4 million and an expense ratio of 0.39%.

VictoryShares USAA MSCI USA Value Momentum ETF ULVM

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 $462.3 million in AUM and charges 0.20% in expense ratio.

SPDR Russell 1000 Momentum Focus ETF ONEO

With AUM of $301.9 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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Novavax, Inc. (NVAX) : Free Stock Analysis Report
 
Invesco DWA Momentum ETF (PDP): ETF Research Reports
 
SPDR Russell 1000 Momentum Focus ETF (ONEO): ETF Research Reports
 
iShares Edge MSCI USA Momentum Factor ETF (MTUM): ETF Research Reports
 
VictoryShares USAA MSCI USA Value Momentum ETF (ULVM): ETF Research Reports
 
Invesco SP MidCap Momentum ETF (XMMO): ETF Research Reports
 
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