Here's Why Momentum ETFs Are Looking Good Buys

The world’s largest economy seems to be on the path of economic recovery from the pandemic-led slump. There are several factors which are keeping the investors enthusiastic despite the rising number of delta variant cases in the United States. Thus, investors who want to gain from the steadily recovering U.S. economy can consider momentum ETFs. Before discussing the available ETF options in details, here we highlight the most powerful reasons why you should invest in them:

Market analysts seem to be upbeat about the second-quarter earnings season which has already seen better-than-expected results, stimulating the rally in stock markets. Per FactSet data, 87% of the S&P 500 companies have reported an earnings surprise (per a CNBC article). Notably, considering the current earnings beat percentage, this might stand out as the best quarter for earnings surprises since 2008, according to a CNBC report.

Moreover, the latest jobs report, which highlights improving employment conditions in the United States, is also boosting the optimism levels. According to the Labor Department, the U.S. economy added 943,000 jobs (he best since August 2020) last month amid surging delta variant woes, as stated in a CNBC article. The metric surpassed the Dow Jones estimates of adding 845,000 jobs in July.

The unemployment rate also declined to 5.4%, comparing favorably with the estimate of 5.7%, per a CNBC report. Commenting on the jobs data, Robert Frick, corporate economist at Navy Federal Credit Union, has said that “This not only was a strong jobs report by nearly every measure, it also signals more good things to come,” according to a CNBC article.

Leading global financial holding company, The Goldman Sachs Group, Inc. (NYSE:GS) has boosted optimism among investors by upgrading its year-end price target for the S&P 500 to 4,700 from the previously-stated 4,300 (per a YahooFinance article). This represents a rise of about 7% from the closing price on Aug 4.

Going on, Goldman Sachs has raised its S&P 500 price target to 4,900 for 2022 from the prior forecast of 4,600. An impressive S&P 500 companies earnings season and a dovish Fed have mostly been the tailwinds behind the revised forecast.

Commenting on the current market condition, Jason Pride, chief investment officer of private wealth at Glenmede, has noted that “Despite the delta variant surge in cases across the U.S., recent mobility data suggest that consumer spending should remain robust. Weekly foot traffic data gathered by Placer.ai for sectors sensitive to COVID-19 such as hotels, dining, leisure, and fitness continues to increase to sit near or surpass prepandemic peaks,” per a CNBC article.

Also, the latest development highlighting the bipartisan infrastructure bill of $550 billion, which the Senate introduced on Aug 1, in addition to the previously-approved funds of $450 billion for five years, has also brought some optimism. Total spending may go up to $1.2 trillion, if the plan is extended to eight years.

Consumer confidence in the United States also seems impressive as it stays at its highest level since February 2020. The Conference Board's measure of consumer confidence index stands at 129.1 in July, comparing favorably with June’s reading of 128.9. Moreover, July’s reading beat the consensus estimate of the index declining to 123.9, per a Reuters’ poll. Strengthening optimism, coronavirus vaccines have been found to be effective against the delta variant.

Going on, the U.S. GDP grew at a 6.5% annualized rate in the second quarter of 2021, per the Commerce Department’s first estimate (as mentioned in a CNBC article). However, the metric lagged the Dow Jones estimate of 8.4%. Despite missing the estimate, in absolute term, U.S. GDP came in at $19.4 trillion in second-quarter 2021, exceeding $19.2 trillion recorded in fourth-quarter 2019 (the last quarter before the outbreak of coronavirus).

Moreover, the Fed’s continued support with easy monetary policies and fiscal stimulus support are strengthening hopes of rapid recovery from the coronavirus-led slump.

Momentum ETFs Worth Your Attention

Momentum investing looks to fetch profits from hot stocks that have shown an uptrend over the past few weeks or months. Here we present five ETFs that could outperform on the current market optimism. Further, these could beat broader market returns in the coming months if the optimism prevails.

iShares MSCI USA Momentum Factor ETF MTUM

This fund provides exposure to large and mid-cap stocks that exhibit relatively higher price momentum by tracking the MSCI USA Momentum SR Variant Index. It charges 15 basis points (bps) in fees per year and is a popular choice, with AUM of $14.84 billion (read: Fed Less Likely to Taper Soon on Delta Concerns: ETFs to Buy).

Invesco DWA Momentum ETF PDP

This fund tracks the Dorsey Wright Technical Leaders Index, which measures the performance of companies that demonstrate powerful relative strength characteristics. It has amassed $1.83 billion in its asset base and charges 62 bps in annual fees (read: Momentum ETFs & Stocks to Buy Now).

Invesco S&P MidCap Momentum ETF XMMO

This ETF follows the S&P Midcap 400 Momentum Index, which is designed to identify mid-cap firms with the highest momentum scores. XMMO has AUM of $921.5 million and an expense ratio of 0.34% (read: 5 Mid-Cap ETFs for Outperformance Amid Volatility).

VictoryShares USAA MSCI USA Value Momentum ETF ULVM

This fund tracks the MSCI USA Select Value Momentum Blend Index, offering exposure to large and mid-cap companies with higher exposure to value and momentum factors, while maintaining a moderate turnover and lower realized volatility compared with the traditional capitalization weighted indices. It accumulated $429.6 million in AUM and charges 0.20% in expense ratio.

SPDR Russell 1000 Momentum (NYSE:ONEO) Focus ETF ONEO

With AUM of $317.8 million, this product targets large-cap securities with a combination of core factors (high value, high quality and low size characteristics) and a focus factor comprising high momentum characteristics. It follows the Russell 1000 Momentum Focused Factor Index and charges an annual fee of 20 bps.

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