ETF Of The Week: Momentum Tech On Fire

July 19, 2019

It’s no question that momentum has been a winning strategy year to date, with several momentum-weighted ETFs riding the rising S&P 500 Index even higher.

The highest flyer in this segment—and the second-best-performing ETF to date—is the $247 million Invesco DWA Technology Momentum ETF (PTF). So far in 2019, the fund is up an eye-popping 48%:

 

Source: StockCharts.com; data as of July 18, 2019

 

Small Cap Tech Drives PTF's Rise

PTF has benefited not just from its momentum weighting, but from its exposure to tech stocks, a sector that has once again pushed the S&P 500 Index to all-new highs. That makes it something of a leveraged play on the underlying market—good, when that market is trending up (read: "Best Performing ETFs Of The Year").

The fund, which holds 40 tech companies selected and weighted by their price momentum, contains big gainers, including payroll and human resources firm Paycom Software (PAYC), which has risen 108% year to date; and solar power software provider Enphase Energy (ENPH), which has risen 310%.

PTF allocates 5% of its portfolio to Paycom and 4% to Enphase.

 

(You can use our stock finder tool to find an ETF's allocation to a certain stock.)

 

Incidentally, Enphase Energy has also helped push 2019's best-performing ETF, the Invesco Solar ETF (TAN), to the top of the charts (read: "2019's Top ETF Shines Bright").

Weaker Liquidity, Considerable Cost

PTF's tech focus has tilted it toward smaller capitalization firms; the fund's weighted average market cap is $19 billion, which is a factor of 10 smaller than that of the largest momentum ETF, the $10.2 billion iShares Edge MSCI U.S.A. Momentum Factor ETF (MTUM). That smaller cap focus has helped give PTF that performance edge over MTUM, which, year to date, has risen only 23%. (In comparison, the SPDR S&P 500 ETF Trust (SPY) has risen 21% so far in 2019.)

That said, PTF has much weaker daily volume compared with MTUM, though its underlying liquidity for creations and redemptions remains solid. On average, the fund trades about $3 million, with an average spread of 0.23%.

With an expense ratio of 0.60%, PTF is also significantly more expensive to hold longer term than MTUM, which costs 0.15% per year.

Contact Lara Crigger at [email protected]

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