Could now be the time for factor investing to thrive? Most investors already have significant exposures to market leading tech stocks which dominate overall performance. Outside of that, then, how can investors adapt their equity portfolios? Factors and style investing options in the ETF wrapper offer a great deal of adaptability. Factors like momentum, for example, in an ETF wrapper, can provide a big boost in a satellite role.
Key Takeaways:
- Factor ETF strategies may have a role to play in a concentrated, volatile market.
- Momentum may be one such factor that investors may want to consider, picking up on important trends.
- ETFs like MFMO and FDMO offer intriguing options within this space.
Why momentum? Momentum can pick up on trends that many market watchers may miss. At the same time, it can offer a kind of diversification, leaning into areas that may not be as popular in slower moving portfolios if they manage to do well.
Two funds offer key examples of how to do momentum ETF investing. (MFMO), the Motley Fool Momentum Factor ETF, and (FDMO ), the Fidelity Momentum Factor ETF, have both performed well in recent times.
FDMO launched in 2016 and will see its 10th anniversary of operation this year. The fund charges 15 basis points to track the Fidelity U.S. Momentum Factor Index. That proprietary index uses price trends to identify firms able to outperform in the medium term. The fund has performed well over the last 12 months with a 38.28% return, according to ETF Database data.
However, MFMO has taken the lead YTD. Since its December launch, the momentum ETF — which carries a 50 bps expense ratio — has outpaced FDMO over both the last month (8.89%) and year-to-date (6.46%).
See more: Are Dividends Back? This Dividend ETF SPHD Soared in Q1
MFMO tracks the Motley Fool Momentum Index, also a proprietary index that applies rules to select and weight stocks based on conviction and momentum composite scores. The ETF merges price momentum and factor momentum among other metrics to pick stocks likely to continue to gain.
In an uncertain and volatile market, FDMO and MFMO could make for an intriguing option set. With their factor approach, the momentum ETF duo are positioned to pick up on hot streaks that other funds may miss, making them an intriguing satellite ETF offering.
For more news, information, and analysis, visit The Thematic Investing Content Hub.
VettaFi LLC (“VettaFi”) is the index provider for MFMO, which it receives an index licensing fee. However, MFMO is not issued, sponsored, endorsed or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of MFMO.
