Because
of its name many may assume that the momentum ETF from Ishares (ticker) is top
heavy with technology stocks and in particular the FAANG stocks
(Facebook,Apple,Amazon,Netflix and Google.
In
fact tht is not the case. The methodology setting the components takes into
account volatility as well as upward price momentum. That is in contrast to cap weighted indices like the S+P 500 (SPY), Nasdaq (QQQ) and Technology indices (XLK) Although its largest sector
is technology(36%) It only includes one stock: Apple which has the lowest
p/e of the group.
Here
are the top 20 holdings in Mtum:
Name
|
Weight (%)
|
Sector
|
JPMORGAN CHASE & CO
|
5.2
|
Financials
|
MICROSOFT CORP
|
5.2
|
Information Technology
|
APPLE INC
|
4.75
|
Information Technology
|
NVIDIA CORP
|
4.32
|
Information Technology
|
BANK OF AMERICA CORP
|
4.15
|
Financials
|
BOEING
|
4.05
|
Industrials
|
VISA INC CLASS A
|
3.59
|
Information Technology
|
UNITEDHEALTH GROUP INC
|
3.59
|
Health Care
|
MASTERCARD INC CLASS A
|
3.17
|
Information Technology
|
ABBVIE INC
|
2.91
|
Health Care
|
CITIGROUP INC
|
2.74
|
Financials
|
MCDONALDS CORP
|
2.38
|
Consumer Discretionary
|
HOME DEPOT INC
|
2.28
|
Consumer Discretionary
|
3M
|
2.27
|
Industrials
|
ADOBE SYSTEM INC
|
2.07
|
Information Technology
|
PAYPAL HOLDINGS INC
|
1.99
|
Information Technology
|
ABBOTT LABORATORIES
|
1.63
|
Health Care
|
CATERPILLAR INC
|
1.55
|
Industrials
|
TEXAS INSTRUMENT INC
|
1.44
|
Information Technology
|
MICRON TECHNOLOGY INC
|
1.33
|
Information Technology
|
In
fact that is not the case. The methodology setting the components takes into
account volatility as well as upward price momentum Although its largest sector
is technology(36%) It only includes one stock of the FAANG among its top twenty holdings: Apple which has the lowest
p/e of the group.
Mtum actually includes a far smaller % of its holdings in
the FAANG stocks than the S+P 500 whose top holdings are below
And not at all surprisingly the Nasdaq has an even higher
weighting of FAANG stocks which make up 37% of QQQ (Nasdaq 100 etf)
The technology ETF (XLK) has 31% of its holdings in FAANG ( and this despite the fact that Amazon and Netflix are
in consumer discretionary not technology).
Because of this differential MTUM is far less sensitive to moves in the FAANG stocks..or to any single stock that loses price momentum.
Mtum also puts a sell discipline on investors. As a stock loses upward price momentum it automatically comes out of the MTUM portfoilio
On the other hand whether or not to sell one's exposure to the technology sector either by selling SPY and diversifying into other "smart beta" ETFs, or selling QQQ or XLK leaves the investor with a timing decision. And we know all the behavior pitfalls in market timing and buy/sell decisions. In fact MTUM is "on the opposite side" of the panic sellers since it automatically adjusts and rebalances to reduce holdings of stocks without positive price momentum
Mtum also puts a sell discipline on investors. As a stock loses upward price momentum it automatically comes out of the MTUM portfoilio
On the other hand whether or not to sell one's exposure to the technology sector either by selling SPY and diversifying into other "smart beta" ETFs, or selling QQQ or XLK leaves the investor with a timing decision. And we know all the behavior pitfalls in market timing and buy/sell decisions. In fact MTUM is "on the opposite side" of the panic sellers since it automatically adjusts and rebalances to reduce holdings of stocks without positive price momentum
As Facebook took its major drop of 7% on March 19 here is what MTUM,SPY,QQQ, and XLK have looked like since March 12 total return chart and bar chart of same data
 |
| SPY(green) MTUM(Black), QQQ(gold) XLK (blue) _______________________________________________ Total Return (top) Volatility (Bottom) |
 |
| SPY(green) MTUM(Black), QQQ(gold) XLK (blue) |
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