iShares MSCI USA Momentum Factor ETF (MTUM) Lags Peers Despite Recent Gains

The article discusses the performance of the iShares MSCI USA Momentum Factor ETF (MTUM), a passively managed exchange-traded fund that tracks the MSCI USA Momentum SR Variant Index, and its inconsistent returns compared to key benchmarks and peer funds, particularly the Invesco S&P 500 Momentum ETF (SPMO), in the context of the US stock market. The fund's heavy exposure to volatile technology stocks and high portfolio PE ratio may contribute to its underperformance, highlighting the importance of careful portfolio construction and risk management. This description focuses on the primary topic (MTUM's performance), main entities (MTUM and SPMO), context (US stock market), and significant actions/consequences (inconsistent returns and potential factors contributing to underperformance). The objective details provided will help an AI generate an accurate visual representation of the article's content, such as a graph comparing the performance of MTUM and SPMO, or an image depicting the technology sector's impact on MTUM's portfolio.

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Nitish Verma
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iShares MSCI USA Momentum Factor ETF (MTUM) Lags Peers Despite Recent Gains

iShares MSCI USA Momentum Factor ETF (MTUM) Lags Peers Despite Recent Gains

The iShares MSCI USA Momentum Factor ETF (MTUM) has posted strong returns over the past six months, outperforming the broader markets during an unusually robust period. However, the ETF's long-term track record remains patchy, with underperformance compared to key benchmarks and peer funds.

Why this matters: The performance of MTUM has significant implications for investors seeking to capitalize on momentum investing strategies, and its underperformance raises questions about the effectiveness of such approaches. Moreover, the fund's exposure to volatile technology stocks highlights the importance of careful portfolio construction and risk management in today's market environment.

Since its launch in 2013, MTUM has lagged behind the Invesco QQQ ETF (QQQ) and only matched the performance of the SPDR S&P 500 ETF Trust (SPY). More notably, MTUM has consistently underperformed relative to its direct competitor, the Invesco S&P 500 Momentum ETF (SPMO), over both short-term and long-term horizons.

MTUM is a passively managed ETF that tracks the MSCI USA Momentum SR Variant Index. The fund selects the 125 stocks with the highest momentum scores from the MSCI USA Index and weights them by market capitalization. As of May 10, 2024, MTUM has $43.35 billion in net assets and an expense ratio of 0.15%.

The ETF's top holdings include high-momentum technology stocks such as NVIDIA (NVDA) and Meta Platforms (META). In fact, the technology sector accounts for the largest portion of MTUM's portfolio. This heavy exposure to volatile tech stocks, combined with a high portfolio PE ratio of 38.06, may contribute to the fund's inconsistent performance.

MTUM rebalances its holdings semi-annually in May and November, with additional ad-hoc rebalancing during periods of high market volatility. The rebalancing process involves adjusting the momentum scores and weights of the stocks in the portfolio. While MTUM's expense ratio is attractively low compared to most of its peers, its high PE ratio stands out among other momentum ETFs.

In contrast, the Invesco S&P 500 Momentum ETF (SPMO) employs a different weighting strategy that concentrates on high-momentum stocks. This approach has helped SPMO consistently outperform MTUM over various time frames. As of May 10, 2024, MTUM has a 1-year return of 32.37% and a year-to-date return of 10.87%. Despite these recent gains, the ETF's long-term performance remains underwhelming compared to its peers and the broader market indices.

Key Takeaways

  • MTUM has strong 6-month returns but a patchy long-term track record.
  • The ETF has underperformed key benchmarks and peer funds since its 2013 launch.
  • MTUM's high exposure to volatile tech stocks contributes to its inconsistent performance.
  • The fund's high PE ratio of 38.06 stands out among other momentum ETFs.
  • Invesco S&P 500 Momentum ETF (SPMO) has consistently outperformed MTUM over various time frames.