A few of the earliest quantitative work on momentum-style investing appeared in H.M. Gartley’s “Relative Velocity Statistics: Their Application in Portfolio Analysis” printed within the April 1945 challenge of the Monetary Analysts Journal. Gartley’s velocity statistics have been related to what we now name “beta.” Gartley mentioned the concept of relative power in his paper, however didn’t specify a selected momentum mannequin based mostly on relative power.

After Gartley, there was a giant hole and little consideration was paid to relative power investing, however after twenty years an in depth paper was printed by Robert A. Levy – “Relative Strength as a Criterion for Investment Selection” which demonstrated that relative power investing labored very effectively throughout his take a look at interval of 1960-1965. Levy discovered that shares that carried out effectively over the earlier 26 weeks additionally tended to do effectively within the subsequent 26-week interval. Levy’s analysis was accomplished utilizing IBM 7090 and 7094 mainframe computer systems. The uncooked knowledge for his exams have been the weekly closing costs of 200 shares listed on the New York Inventory Change for the 260-week interval starting on Monday, October 24, 1960, and ending on Friday, October 15, 1965. The 200 shares have been chosen utilizing a number of totally different standards and throughout all sectors of the market.

Levy additionally printed a classic book in 1968 – “The Relative Strength Concept of Common Stock Price Forecasting.” The least expensive used copy of this ebook on Amazon (NASDAQ:AMZN) sells for $253 (in acceptable situation) and copies in higher situation promote for between $300 and $800. So Levy’s ebook itself has additionally been a fairly good funding!

Two finance professors, Narasimhan Jegadeesh and Sheridan Titman, supported Levy’s analysis with their classic research paper “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency” printed in March 1993. They confirmed that shares with sturdy efficiency during the last three to twelve months earn above-average returns over the next yr. Additionally they confirmed that those self same shares went on to underperform the market throughout months 13 to 60. So relative power momentum often solely lasts for about one yr, though some other research has proven that shares making new 52-week highs usually exhibit momentum lasting for a couple of yr.

Momentum investing might be tough to perform in observe with particular person shares due to excessive turnover. Because of this, I’ve personally used Constancy Choose sector funds for relative power investing previously. However during the last 5 years, some ETFs have come out which do a fairly good job of implementing momentum investing with particular person shares and can be found with a low expense ratio. On this article, I’ll talk about the iShares Edge MSCI USA Momentum Factor ETF (MTUM) which might be better of breed for this class.

Total Goal and Technique

The iShares Edge MSCI USA Momentum Factor ETF provides you an index-based method to entry the momentum issue described within the analysis of Jegadeesh and Titman. You get publicity to large- and mid-cap US shares exhibiting comparatively excessive worth momentum by monitoring the MSCA USA Momentum Index which emphasizes shares with excessive worth momentum, but in addition maintains moderately excessive buying and selling liquidity, funding capability and reasonable index turnover.

Index Methodology

  1. A momentum worth is set for every inventory within the MSCI USA father or mother index by combining the inventory’s current 12-month and 6-month native worth efficiency. This momentum worth is then risk-adjusted to decide the inventory’s momentum rating.
  2. A fastened variety of securities with the very best momentum scores are included within the index, typically overlaying about 30% of the father or mother index market cap.
  3. Constituents are weighted by the product of the momentum rating and their market cap. Constituent weights are capped at 5%.
  4. The index is rebalanced semiannually. As well as, advert hoc rebalancing might happen when there are spikes in market volatility.

Fund Bills

The expense ratio for MTUM is barely zero.15%. Morningstar has computed the typical expense ratio of comparable funds in its class to be zero.32%, which provides MTUM a particular edge.

Fee-Free Buying and selling

MTUM shouldn’t be at present out there for commission-free buying and selling on any platforms. Until you’ve entry to free trades, it won’t be the only option for small accounts that want to use greenback price averaging. However for a big buy that will likely be held for a while, the low expense ratio of MTUM simply makes up for the preliminary buying and selling fee paid.

Some related momentum-based ETFs which might be out there commission-free are PDP which is commission-free at Charles Schwab (NYSE:SCHW) and FDMO which is commission-free at Constancy.

Previous Efficiency

For efficiency functions, MTUM is classed by Morningstar within the “Large-Cap Growth” or LG class. In contrast with different funds on this class, MTUM has carried out very effectively since its inception in April 2013. These are the annual efficiency figures computed by Morningstar for the previous couple of years.


Class (LG)

+/- Class

Percentile Rank in Class




+ 5.87%


1 Yr



+ Three.84%


Three Yr


+ 9.62%

+ four.43%


Supply: Morningstar

MTUM- Progress of Hypothetical $10,00zero

ETF Rankings

  • Morningstar: 5 Stars (6/23/2017); Analyst score: Silver
  • ETF.com: A/63; Effectivity: 98; Tradability: 99; Match: 63
  • Ned Davis Analysis Total score: Three.eight
  • Development Mannequin: 5; Quick-Time period RS: 5; Lengthy-Time period RS: 5
  • Imply Reversion: Three; Seasonality: 1
  • XTF, Inc.: 9.9 out of 10

Volatility Measures

Three-year Sharpe ratio: 1.38

Three-Yr Normal Deviation: 9.63 (S&P 500= 10.13)

MTUM is a well-diversified fund with a development tilt and has accomplished a very good job of accessing the momentum consider large- and mid-cap shares. It has $Three.eight billion in belongings invested in 123 shares. Annual turnover is 129%. These are the highest ten holdings as of September 1, 2017:

High 10 Holdings % Weight

Microsoft (MSFT)


JPMorgan Chase (JPM)


Apple (AAPL)


Financial institution of America (BAC)


Comcast (CMCSA)


UnitedHealth Group (UNH)


Dwelling Depot (HD)




Boeing (BA)


Constitution Communications (CHTR)



MTUM has gotten off to an excellent begin since inception in 2013. However it will likely be fascinating to see the way it performs after we finally expertise a sharper, longer-lasting inventory market correction. Due to its wonderful efficiency, it has been steadily constructing its belongings beneath administration which have grown about $1.5 billion within the final yr. So long as the fund inflows into MTUM proceed, this could profit the ETF’s efficiency.

Disclosure: I’m/we’re lengthy MTUM.

I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (apart from from In search of Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.