Momentum ETFs Looking Attractive Amid Latest Market Optimism
Wall Street is expected to continue gaining on optimism surrounding new economic data and third-quarter earnings releases, which point to recovery from the pandemic-induced slowdown.
After witnessing a long series of dull and volatile trading sessions, Wall Street has finally delivered the best week in months. Seeing the best week since June, the Dow Jones Industrial Average rose 1.6%. The other two broad indices, the S&P 500 and the Nasdaq Composite, were also up 1.8% and 2.2%, respectively. The former witnessed the best week since July, while the latter saw one since August-end.
The impressive start to the third-quarter earnings season appears to be the major driving force behind the market rally. Going by the FactSet data, out of the 41 S&P 500 companies that have reported the third-quarter earnings results so far, 80% have surpassed the EPS estimates (per a CNBC article). FactSet estimates this earnings season to witness the third-highest quarterly profit growth rate of 30% for S&P 500 companies since 2010.
In another encouraging development, the retail sales data came out to be remarkable. The metric rose 0.7% in September against Dow Jones estimate for a decline of 0.2% and increasing 13.9% from the year-ago figure (according to a CNBC article). After excluding auto-related sales, retail sales were up 0.8%, surpassing the 0.5% estimate and gaining 15.6% on a year-over-year basis.
Commenting on the data, Edward Moya, senior market analyst at Oanda, has commented that “Wall Street was expecting a slowdown in spending, but it turns out the U.S. consumer is not to be messed with. Back-to-back months of better-than-expected retail sales data shows the consumer looks strong heading into the holiday season.” This was stated in a CNBC article.
Furthermore, a lower-than-expected number of weekly jobless claims was added to the list of positive economic data releases. Initial unemployment insurance claims in the week ending Oct 8 came in at 293,000, as mentioned in a CNBC article. According to the same article, the metric had slipped below the 300,000 level for the first time during the pandemic.
The latest ISM Manufacturing Purchasing Managers' Index (PMI) data for the United States paints a rosy picture of U.S. economic recovery. According to a Reuters article, the metric rose to 61.1% in September from 59.9% in August and surpassed forecasts of a decrease to 59.6. Any reading above 50% indicates expansion in U.S. manufacturing activities. Notably, the manufacturing sector, which makes up 12% of the U.S. economy, saw the reading rise for the 16th consecutive month.
Momentum ETFs Worth Your Attention
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 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 SR Variant Index. It charges 15 basis points (bps) in fees per year and is a popular choice, with AUM of $16.04 billion.
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 $1.83 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, designed to identify mid-cap firms with the highest momentum scores. XMMO has AUM of $974.4 million and an expense ratio of 0.33% (read: 5 Mid-Cap ETFs for Outperformance Amid Volatility).
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 maintaining a moderate turnover and lower realized volatility than traditional capitalization-weighted indices. It accumulated $373.6 million in AUM and charges 0.20% in expense ratio.
SPDR Russell 1000 Momentum Focus ETF ONEO
With AUM of $318.9 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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iShares MSCI USA Momentum Factor ETF (MTUM): ETF Research Reports
SPDR Russell 1000 Momentum Focus ETF (ONEO): ETF Research Reports
Invesco DWA Momentum ETF (PDP): ETF Research Reports
VictoryShares USAA MSCI USA Value Momentum ETF (ULVM): ETF Research Reports
Invesco S&P MidCap Momentum ETF (XMMO): ETF Research Reports
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