Displaying items by tag: momentum

Momentum remains the dominant factor in 2025, with the iShares MSCI USA Momentum ETF (MTUM) up 19.6% and the Invesco High Beta ETF (SPHB) close behind at 18.7%, both well ahead of the S&P 500’s 10.7% gain. 

Growth ETFs are trailing the leaders, with the iShares S&P 500 Growth ETF (IVW) delivering a solid 14.2% return. Factor leadership has been narrow, with momentum and high beta capturing most of the gains so far this year. 

At the same time, investors are showing renewed interest in high-dividend strategies, as the Vanguard High Dividend Yield ETF (VYM) hit a record high. Expectations of Federal Reserve rate cuts are making dividend payouts more attractive relative to bonds. 

Finsum: Momentum, high beta, and dividend strategies are setting the tone for factor performance in 2025.

Momentum investing has gained traction as a powerful tool for capturing upside in post-recessionary bull markets, and the iShares MSCI USA Momentum Factor ETF (MTUM) exemplifies this approach. 

Designed to overweight stocks with strong recent performance, MTUM delivered a 1,030% total return from 2009 to 2025, recovering quickly from drawdowns and outperforming broader market indices. Its risk-adjusted returns, reflected in a Sharpe ratio of 0.68 and Sortino ratio of 0.90, show that it balances volatility with consistent performance, particularly when tilted toward high-growth sectors like tech. 

Academic research backs this strategy, highlighting its resilience and efficiency during economic recoveries, especially when managed with volatility controls. While MTUM carries market risk, its focus on large and mid-cap stocks helps mitigate exposure to smaller, more volatile names. 

Finsum: For long-term investors willing to ride short-term swings, MTUM presents a disciplined way to harness the enduring power of momentum.

(New York)

Momentum funds often get bad press. While they have obvious utility, a lot of people say they feed bubbles and are subject to very big losses from market corrections. That said, some funds have started to do an excellent job at both hedging and outperforming to the upside. While that might sound impossible, it is not as hard as it sounds. The key is to follow the market’s movement, but not try to predict it. In other words, in strongly upward markets, you position yourself very bullish (e.g. 200% exposure). In downward markets, you take an inverse or short exposure to profit from losses. In a decent market you simply stay at 100% long exposure. By using this approach you can participate it more of the upside and lose less on the downside.

FINSUM: This is a smart strategy and one that some momentum funds are using to outperform the market right now. It can be employed either by buying funds or with an options strategy.

(Los Angeles)

One prominent short seller has come out warning investors about Tesla, 2020’s rocket ship stock. Citron Research, a legendary short-seller, says that investors should dump Tesla’s stock, as the gains have all been “computer-generated”. The stock closed up 14% again yesterday. Citron says “This is obviously a computer-generated rally, it’s not a reflection on the company, or on valuation. It’s just a trade … Yes, I'm shorting it…whoever bought it at these prices has to flush it out, and when it flushes, it’s going to flush hard.” The firm also referred to Tesla’s stock as a casino.

FINSUM: Tesla is up 112% in 2020. This is a case study in irrational exuberance, or what might now be called “momentum”.

(New York)

It has been for around a decade that value stocks have been getting hammered by growth stocks. The rut has been so bad that many have given up on the discipline altogether. But recently, something has been changing. Momentum stocks, long the darling of this bull market, have started to lag their value-oriented peers. This change started last week and is continuing today, and follows the worst month for value stocks in at least 20 years (this past August).

FINSUM: This is an encouraging sign, but certainly is not enough to say “value stocks are back!”.