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High Momentum ETFs to Buy on Wall Street's Winning Streak

Wall Street has been on a winning streak. Three key U.S. indexes have been hovering at a record high.

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This story originally appeared on Zacks

Wall Street has been on a winning streak. The S&P 500, the Nasdaq, the Dow Jones and the Russell 2000 indexes — all are trading at a record high, led by gains in Tesla and energy stocks. The long-ailing Dow Jones closed above 36,000 for the first time. Strong corporate earnings gave investors confidence in a year-end rally and led them to look past the imminent Fed decision.

- Zacks

Overall, third-quarter earnings have come in better than expected for U.S. companies as the economy continues to rebound from the coronavirus pandemic. With some 320 companies having reported so far, S&P 500 earnings are expected to have jumped 40.2% in the third quarter from a year ago, according to Refinitiv IBES, per a Reuters article.

"Most times, markets are happiest when they get predictability, when they get what they expect, and I think the expectation is that they are going to taper,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas, per Reuters. Investors expect a faster pace for Fed rate hikes, CNBC survey shows.

About 44% of the 25 respondents believe the Fed will hike rates by July, meaning that rate hikes will follow the end of taper by just a few months. Fed funds futures markets have a 58% chance of the first rate hike in June and a 73% likelihood of a second increase by December.

If many investors are prepared for such an aggressive Fed move, then there is not much likely to happen on the fear-driven equity market slump. On stocks, the survey revealed a 48% chance of a 10% downside move and a 39% chance of a 10% upside move, the CNBC article indicated.

Plus, historically, November has an upbeat reputation in the stock market. According to moneychimp.com, a consensus carried out from 1950 to 2020 has revealed that November ended up offering positive returns in 48 years and negative returns in 23 years, with an average positive return of 1.53%.

While the past movement of the price of a stock cannot be used to predict its future movement, history shows that recent past performance can be a pretty good predictor of short-term future performance. Against this backdrop, momentum investing looks to be great.

The momentum effect, which refers to the tendency of winning stocks to keep winning, has been documented in many academic studies. Enthusiastic investors love to bet bigger on high fliers, even ignoring fundamentals at times. With investors’ optimism at its peak, we would like to note that the following momentum ETFs maybe tapped now.

ETFs in Focus

iShares MSCI USA Momentum Factor ETF MTUM

The underlying MSCI USA Momentum SR Variant Index measures the performance of U.S. large and mid-capitalization stocks exhibiting relatively higher momentum characteristics. The fund charges 15 bps in fees (read: ETF Strategies to Cheer the Market Momentum in October).

Invesco DWA Momentum ETF PDP

The underlying Dorsey Wright Technical Leaders Index includes approximately 100 U.S.-listed companies that demonstrate powerful relative strength characteristics and constructed pursuant to the Dorsey Wright proprietary methodology. The fund charges 62 bps in fees.

Pacer Trendpilot US Bond ETF PTBD

The underlying Pacer Trendpilot US Bond Index uses an objective, rules-based methodology to implement a systematic trend-following strategy that directs exposure to one of the following : 100% to the S&P U.S. High Yield Corporate Bond Index; 50% to the S&P U.S. High Yield Corporate Bond Index and 50% to the S&P U.S. Treasury Bond 7-10 Year Index or 100% to S&P U.S. Treasury Bond 7-10 Year Index. The fund charges 60 bps in fees.

Invesco S&P MidCap Momentum ETF XMMO

The underlying S&P Midcap 400 Momentum Index is composed of securities with strong growth characteristics selected from the Russell Midcap Index. The fund charges 34 bps in fees.

iShares MSCI International Momentum Factor ETF IMTM

The underlying MSCI World ex USA Momentum Index consists of stocks exhibiting relatively higher momentum characteristics than the traditional market capitalization-weighted parent index, the MSCI World ex USA Index. The fund charges 30 bps in fees.



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iShares MSCI Intl Momentum Factor ETF (IMTM): ETF Research Reports

 

Invesco DWA Momentum ETF (PDP): ETF Research Reports

 

Invesco S&P MidCap Momentum ETF (XMMO): ETF Research Reports

 

Pacer Trendpilot US Bond ETF (PTBD): ETF Research Reports

 

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Zacks Investment Research