Momentum Investing on the Rise: ETFs Shine in 2023
Factor investing involves selecting stocks based on key traits, or “factors,” that have historically shown potential for high returns. These factors can include value, quality, momentum, size, and minimal volatility.
However, the performance of these factors can vary greatly, making market timing difficult. For example, in one year, low volatility might excel while momentum takes the lead the next year.
Looking back over the past 10 to 15 years, only two factor indexes—quality and momentum—have outperformed the overall market.
In 2023, the momentum factor has stood out as a strong performer. Many investors are shifting their funds toward the hottest stocks. For example, the Invesco S&P 500 Momentum ETF (SPMO) has surged nearly 50%, while the iShares MSCI USA Momentum Factor ETF (MTUM) has risen by 40%.
The momentum effect, where successful stocks tend to continue performing well, is well-documented. Notably, the work of Jegadeesh and Titman in 1993 provides substantial evidence of this trend.
Last year, however, the MTUM ETF struggled compared to the broader market. It only included NVIDIA (NVDA) during its May rebalancing, missing out on the stock’s significant rise earlier in the year. Additionally, the ETF leaned towards a healthcare sector that underperformed.
The SPMO ETF has a concentration issue, with its top five stocks—Amazon (AMZN), NVIDIA (NVDA), Meta Platforms (META), Berkshire Hathaway (BRK.B), and Eli Lilly (LLY)—making up 37% of its holdings. Since its launch in October 2015, this ETF has gained over 331%. This is a remarkable outperforming statistic compared to the S&P 500’s (SPY) 250% increase and MTUM’s 235% rise in the same time frame.
To gain further insights, please check out the video above.
Stay Updated with Key ETF Insights Delivered to You
Zacks’ free Fund Newsletter provides weekly updates on essential news, analysis, and top-performing ETFs.
Get it free >>
Looking for investment suggestions from Zacks Investment Research? Download our report on “5 Stocks Set to Double” for free today.
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Eli Lilly and Company (LLY) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
SPDR S&P 500 ETF (SPY): ETF Research Reports
iShares MSCI USA Momentum Factor ETF (MTUM): ETF Research Reports
Invesco S&P 500 Momentum ETF (SPMO): ETF Research Reports
Meta Platforms, Inc. (META) : Free Stock Analysis Report
Berkshire Hathaway Inc. (BRK.B) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
