Well, this is what momentum stocks and some exchange trade funds backed by the momentum factor do: Change course in a hurry.
For the better in recent days, that has been the case with the iShares MSCI USA Momentum Factor ETF (NYSE:MTUM). First, some housekeeping as it pertains to MTUM. It was the only ETF to hit an all-time during Thursday's broader market rally, but with that new high being $76.30 and the fund closing at $70.60, it is reasonable to suspect this is a case of some lingering ETF pricing issuesearlier this week.
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MTUM's net asset value as of August 27 was $76.55, just below its closing price on the same date, according to iShares data. What was happening with ETF pricing earlier is another ballgame altogether, but MTUM does not have a penchant for swing well above or below NAV. In the second quarter, MTUM spent 49 days trading at a premium to NAV, but the biggest such premium was just a tenth of a percent, according to issuer to data.
Back To The Rally
Getting back to MTUM's mini snap-back rally, from July 25 to August 28, the ETF lost 10.1 percent, but by adding in Wednesday's and Thursday's gains, MTUM's one-month loss is pared to just over 4 percent.
Explaining MTUM's recent woes is not difficult. Remember all that chatter about the Dow Jones Industrial Average making a death cross? MTUM's top 10 lineup includes four Dow components, including two Walt Disney Co (NYSE:DIS) and Apple Inc. (NASDAQ:AAPL) that played big roles in the Dow death cross talk.
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The $807.7 million MTUM tracks the MSCI USA Momentum Index and there is little in the way of perceived momentum surprises in the ETF or its underlying benchmark. Investors should look elsewhere if they want an ETF heavy on telecommunications or utilities stocks. Likewise because these sectors have displayed less-than-impressive momentum traits, MTUM offers only token industrials and materials exposure while holding no energy stocks.
That might be why the ETF is up 3.7 percent this year, while the S&P 500 is off 3.5 percent. MTUM's momentum factor usage is highlighted by a combined 61.7 percent weight to the consumer discretionary and healthcare sectors. Fourteen of the ETF's top 20 holdings hail from those sectors, led by a 6.2 percent allocation to Amazon.com, Inc. (NASDAQ:AMZN), MTUM's largest holding.
Another surprise with MTUM is an almost 15 percent weight to consumer staples stocks, but remember, that momentum can be had by any stock from any stock. The factor is not reserved for the Amazons and Apples of the world.
More surprising is that this is an ETF rooted in the momentum factor with a 29 percent weight to the healthcare sector, but just five of MTUM's 123 equity holdings are biotechnology stocks and that quintet combines for an inconsequential percentage of the fund's weight.
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