The $12.7 billion iShares MSCI USA Momentum Factor ETF (MTUM) got a $2.3 billion infusion from investors starting in late September, with weekly gains ranging from $61 million to $918 million. The surge continued into November.
Up to that point, it had been mostly losing money, with $2 billion in outflows for most of the first three quarters. Momentum was one of the worst-performing factors during that period.
That’s a significant inflow for a fund at a time when flows into ETFs have been slowing compared with last year. While momentum inflows have not been uniform, investors may be looking for a bright spot, and MTUM just so happens to be offering it.
It is by far the largest ETF offering a momentum strategy, with the Invesco DWA Momentum ETF (PDP) being the next largest fund in the space, with $1.1 billion. MTUM is also one of the cheapest, at just 15 basis points, and its issuer, BlackRock’s iShares, is the largest, and one of the most trusted names in the ETF business.
In the last month, unleveraged ETFs that select their holdings based on momentum have returned anywhere from -0.52% to 16%, while the SPDR S&P 500 ETF Trust (SPY) is up 11.4%. MTUM is up 10%.
BlackRock Inc. declined to comment on MTUM’s recent inflows.
‘Momentum Is Value’
However, Wes Gray, founder and CEO of ETF issuer Alpha Architect, which is responsible for the actively managed $144.8 million Alpha Architect U.S. Quantitative Momentum ETF (QMOM), had some thoughts on the momentum strategy. QMOM is up more than 7% over the last month; it’s seen year-to-date inflows of more than $53 million.
Gray believes the interest in his firm’s momentum fund stems from the versatility it offers investors.
“Most people like value right now,” he noted. “Momentum is value right now. It’s kind of a way to play value, but have that ability to pivot.”
And certainly, value has outperformed growth by a wide margin year to date.
What he terms the “chameleon” nature of momentum stems from the fact that such strategies pick up whatever stocks are in a sustained upward trend.
For a long time, growth-oriented technology stocks were the securities that best exemplified that ethos, but lately, value-oriented stocks are more typical in momentum strategies. Currently, health care, energy and consumer staples stocks make up more than 67% of MTUM’s portfolio, while information technology is less than 10% of the fund.
However, MTUM only rebalances semiannually, while Gray’s smaller, actively managed fund has a lot more leeway to adapt to market conditions. iShares funds, on the other hand, are designed to handle large amounts of assets, he notes, which makes agility difficult. Still, based on its sector exposures, it looks like MTUM’s index did capture that value element during its May rebalance.
“Fortunate or unfortunate, just not having tons of AUM means we can move a lot quicker,” he said.
Contact Heather Bell at [email protected]