MTUM Sees Outflows as Market Sentiment Declines

The recent market correction, which has seen the S&P 500 decline over 10% from its all-time high, led to significant outflows from momentum-focused ETFs like the iShares MSCI USA Momentum Factor ETF (MTUM).  

Investors sold shares of stock exchange-traded funds to protect against further downside risk, as momentum stocks—those that were recent top performers—often experience sharper declines during market downturns. However, contrarian investors who believe the market will rebound from correction levels may see an opportunity in this momentum factor ETF.  

As the correction stabilizes and new leadership emerges in the stock market, MTUM could rotate into the next batch of high-performing stocks, making it an ETF to watch.

Stock ETF Outflows Reflect Market Pessimism

Source: etf.com data as of March 13, 2025.

The table above shows outflows from major stock ETFs, including MTUM, as of March 13, 2025. The data were collected from our ETF Pulse Tool, which is a tracking tool designed to provide investors with insights into the top-trending ETFs based on fund flows and performance metrics. The ETF Pulse Tool offers a platform to monitor, analyze and capitalize on market trends.

If you'd like to check out more of etf.com's proprietary market tools and incorporate them into your own investing, check out our ETF Tools page.

How MTUM Works and How It Invests

MTUM follows a factor-based investment approach, tracking the MSCI USA Momentum Index. The ETF invests in stocks with strong recent price trends, aiming to capture companies that have demonstrated sustained price appreciation over a set period. 

Unlike traditional market-cap-weighted ETFs, such as the SPDR S&P 500 ETF Trust (SPY), MTUM selects stocks based on momentum characteristics and rebalances semiannually to reflect shifting market trends.

Its sector exposure varies over time, depending on which stocks are exhibiting strong momentum. During bull markets, the ETF may hold a high concentration of technology and growth stocks. During other periods, defensive sectors like healthcare and utilities could gain prominence. 

This dynamic allocation makes MTUM unique but also exposes it to sector shifts and volatility.

Pros and Cons of Investing in MTUM

The MTUM ETF can outperform the S&P 500 in up markets, but it generally underperforms in down markets. Understanding the nature of this fund is the key to unlocking its potential. Here are the pros and cons to consider.

Pros

• Exposure to top-performing stocks: The ETF tracks stocks with strong upward price trends, which historically have outperformed in bull markets.
• Systematic rebalancing: The fund adjusts its holdings semiannually, ensuring it continuously reflects the current market’s best-performing stocks.
• Potential for strong gains in recovering markets: When market sentiment improves, momentum stocks can rebound quickly, leading to outperformance in bullish environments.

Cons

• High volatility: Momentum stocks tend to experience larger drawdowns in corrections and bear markets, making this fund more volatile than broad-market ETFs.
• Lag in rotation: Since the ETF rebalances only twice a year, it may not always capture rapid sector shifts in a timely manner.
• Underperformance in market downturns: As seen in the recent market correction, MTUM can struggle when momentum stocks fall out of favor.

Who Should and Should Not Invest in MTUM

MTUM is best suited for investors who:

• Have a high-risk tolerance and can endure short-term volatility for the potential of long-term gains
• Believe in momentum investing and want exposure to stocks that have demonstrated recent strength
• Are comfortable with sector concentration shifts, as MTUM’s holdings can change significantly over time

MTUM may not be the right choice for investors who:

• Prefer a more stable, diversified ETF, like the Vanguard S&P 500 ETF (VOO) or SPY, which track the overall market
• Want low volatility and are concerned about potential underperformance during downturns
• Are looking for long-term core holdings, as momentum strategies require active rebalancing and higher turnover

As markets navigate correction territory, momentum ETFs like MTUM will remain under pressure. However, for investors betting on a market recovery, MTUM could present an opportunity to ride the next wave of market leaders.