iShares MSCI USA Momentum Factor ETF (MTUM) — Another Bright Specimen of Indices’ Outperformance

Yesterday, on May 22, we covered XMMO, which showed excellent results — more than 21% and 29% since the beginning of the year — driven by the dynamic S&P MidCap400 portfolio. Today we keep developing the story by introducing the global version of XMMO by famous iShares asset manager. The iShares MSCI USA Momentum Factor ETF (MTUM) is a passive ETF launched in 2013 which seeks to track the investment results of an index composed of U.S. large- and mid-cap stocks exhibiting relatively higher price momentum.

The momentum value for each security included in MTUM structure is calculated by combining recent 12-month and 6-month local price performance of the security. The momentum value is then further adjusted into a risk-adjusted PMS (not what you thought — it’s just price momentum score accounting for volatility) and then standardized into Z-scores. Securities are then ranked in descending order of this Momentum Z-score. MTUM includes 125 stocks with the highest scores.

Let’s remind, that momentum ETFs generally consider the one-year trailing performance returns of stocks in a targeted underlying momentum index. Momentum indices also give stocks a momentum score in addition to following performance returns. These momentum scores can be based on fundamental characteristics, such as value, size and quality.

Let’s also remind, that momentum investing is following a line that should take into account more fundamental changes in equity earnings over the past 12 months or an increase in growth rates. This investing strategy involves prioritizing the purchase of assets demonstrating upward momentum and selling them when indications suggest a weakening trend. Momentum investing helps only when you are aware of the various market drawbacks.

According to BlackRock, the concept of momentum can be best described through behavioral finance theories. It stems from investors' behavioral tendencies, where individual actions reinforce market trends. Moreover, momentum rewards may offset the risk of short-term underperformance that some investors avoid.