On Monday, a well-known momentum exchange-traded fund made some notable changes, boosting its tech holdings to let investors capitalize on the ongoing stock market rally. The iShares MSCI USA Momentum Factor ETF (MTUM), which manages over $13 billion according to FactSet, aims to spotlight large- and mid-cap U.S. equities with the highest momentum over the past six and twelve months. Wells Fargo’s Christopher Harvey highlighted in a recent commentary that these adjustments would increase the ETF’s stakes in communication services, technology, and financial sectors while pulling back on its defensive positions. Notable additions to the ETF include companies like AT&T, T-Mobile, and Oracle, while Coca-Cola, Lockheed Martin, and NextEra Energy are no longer part of it, Harvey noted. He explained that with these sector adjustments, the fund will see significant factor changes such as a higher beta, lower profitability, and increased leverage. For context, beta measures how a stock portfolio moves compared to the broader market. Among the new entries, Oracle stands out with the largest weight at over 3% in the fund. The rejig also involves welcoming AbbVie and saying goodbye to Eli Lilly.
These updates come as the fund is riding high, up 5.8% in the fourth quarter and over 37% year-to-date, according to FactSet, closing at a record peak last Friday. MTUM is aligned with the MSCI USA Momentum SR Variant Index, a refined version of MSCI’s standard momentum index, and the rebalancing was completed at Monday’s market close. Robert Hum, BlackRock’s U.S. head of factor and outcome ETFs, explained that the fund now adjusts quarterly to mirror market dynamics. “MTUM operates on a rules-based approach, capturing market trends over both a six-month and a twelve-month period,” Hum mentioned. The momentum scores calculated by MSCI concentrate solely on price movements, without delving into fundamentals like earnings. Notably, these scores exclude the most recent month before rebalancing, and new stocks need a minimum six-month momentum score to be considered for inclusion, as outlined in MSCI’s methodology documentation.
In the past month, the fund has drawn about $2.8 billion in inflows, partly reflecting a shift in BlackRock’s model portfolio allocations earlier in November.
