MTUM: Capturing US Momentum with BlackRock's iShares ETF

The iShares MSCI USA Momentum Factor ETF (MTUM) aims to replicate the performance of the MSCI USA Momentum Index, which focuses on stocks with high price momentum. The ETF invests in a diversified portfolio of U.S.-listed stocks with strong momentum, as measured by price and earnings growth. With a low expense ratio of 0.35%, MTUM offers investors a cost-effective way to gain exposure to the momentum factor in the U.S. market.

The iShares MSCI USA Momentum Factor ETF (MTUM) seeks to replicate the performance of the MSCI USA Momentum Index, which focuses on U.S.-listed stocks with high price momentum. By investing in a diversified portfolio of these stocks, MTUM aims to provide investors with exposure to the momentum factor in the U.S. market. With a low expense ratio of 0.35%, MTUM offers a cost-effective way to gain exposure to this investment strategy.

The fund's underlying index, the MSCI USA Momentum SR Variant index, uses a risk-adjusted momentum metric to select and weight stocks. This metric is calculated by dividing the excess return over the risk-free rate by the annualized standard deviation of weekly returns over the last three years. The top 125 companies with the highest momentum scores are selected and weighted in the fund's portfolio, with a maximum exposure limit of 5% per company to mitigate concentration risk [1].

The fund's performance has been mixed compared to other momentum ETFs. Over the last three years, MTUM has underperformed both XMTM and SPMO, which use a pure momentum calculation technique without considering volatility. The difference in performance may be attributed to the risk-adjusted momentum logic used by MTUM, as well as factors such as the 30% one-way turnover limit [1].

MTUM's portfolio is highly focused on the U.S. market, with 97.58% of assets invested in U.S. companies. This focus maximizes consistency with the benchmark index but also exposes the fund to the economic health and monetary policies of the U.S. The Information Technology sector accounts for 27.53% of the portfolio, reflecting the fund's bias towards dynamic megacaps in this sector [1].

The fund's strategy involves quarterly rebalancing to adjust portfolio weights based on momentum scores. This approach allows MTUM to adapt to changing market conditions and capture sustained momentum in different sectors. However, the high P/E ratio of nearly 33× indicates that investors are willing to pay a premium for the potential growth of these companies. A high P/E ratio also implies greater risk of a correction if expectations regarding results moderate or the economic cycle cools [1].

In conclusion, MTUM offers investors a cost-effective way to gain exposure to the momentum factor in the U.S. market. However, the fund's performance has been mixed compared to other momentum ETFs, and its high P/E ratio indicates a greater risk of a correction. Investors should consider their risk profile and the current market conditions before adding MTUM to their portfolio.

References:
[1] https://seekingalpha.com/article/4807517-mtum-etf-capturing-us-momentum