Still Marveling at a Momentum ETF

Momentum is one of the more widely followed investment factors, and plenty of smart beta products offer investors exposure to various momentum-based strategies. Among exchange-traded funds (ETFs), the iShares Edge MSCI USA Momentum Factor ETF (MTUM) is one of fastest growing and most popular momentum funds.

At its core, momentum investing is an easy-to-understand concept. Essentially, momentum investing is the belief that certain stocks in strong uptrends can continue rising, while stocks that are faltering can continue plummeting. (See also: Introduction to Momentum Trading.)

Heading into 2018, there was ample speculation on the part of market participants that the value factor would finally re-emerge against growth and momentum fare. While that could still prove to be true, MTUM is already up 7.43% year to date. Some points suggest that MTUM and momentum investing could have more tailwinds than headwinds this year.

"History reveals this factor is rewarded in times of economic growth – and that support remains firmly in place, we believe," said BlackRock, Inc. (BLK) in a note out Monday. "We expect the global economic expansion to continue through 2018, and see upside to consensus forecasts amid tax cuts and robust government spending in the U.S."

MTUM, which turns five years old in April, follows the MSCI USA Momentum Index. That benchmark "is designed to reflect the performance of an equity momentum strategy by emphasizing stocks with high price momentum, while maintaining reasonably high trading liquidity, investment capacity and moderate index turnover," according to MSCI.

MTUM holds 124 stocks, a combined 59% of which hail from the technology and financial services sectors. The ETF's other significant sector weights include healthcare and industrials, which combine for over 30% of MTUM's roster. Top 10 holdings in the fund include Microsoft Corporation (MSFT), Apple Inc. (AAPL) and NVIDIA Corporation (NVDA).

Momentum strategies could also be supported by rising earnings. "Looking at MSCI indexes, we find: U.S. earnings growth of 11% in 2017 was the strongest since 2011. The outlook for 2018? Nearly 20%, with tax cuts providing a boost and lifting earnings growth prospects by 7%," said BlackRock.

Investors are buying into the notion that MTUM could reward them this year. Literally. Since the start of the year, only nine ETFs have added more new assets than the $1.8 billion added by MTUM. That is $1.8 billion of the fund's $7.65 billion in assets under management. (For additional reading, check out: Top 5 Smart Beta Momentum ETFs.)