Quant-Momentum ETF Is Getting Crushed Even as Stocks Shoot Up

The largest exchange-traded fund focused on high-flying stocks has been losing its edge.

The $9 billion iShares MSCI USA Momentum Factor ETF (ticker MTUM) is trailing the S&P 500 by the most ever on an annual basis, according to data compiled by Bloomberg. The fund, which seeks exposure to shares exhibiting higher-price trends and at its height commanded more than $18 billion in assets, hasn’t seen a full week of inflows since January. After a $2.9 billion exodus, it’s on pace for the worst year of outflows since its 2013 inception.

While MTUM has a sizable portion in tech stocks, it only added Nvidia Corp. in May, data compiled by Bloomberg show. That means the fund has missed out on a lot of the artificial intelligence rally this year. The ETF is also heavily skewed toward one of 2023’s worst-performing sectors: healthcare. Meantime, its exposure to energy — a sector that’s rising again — has been cut to 5% from 25% at the start of the year.

It’s the latest case of a capricious stock market delivering a crushing blow to momentum-chasing investors — with ill-timed rebalancing schedules at a time when former losers like mega caps rebound.

“This is the tricky portion with factor ETFs — timing when one works and when another falls out of favor is very challenging,” said Todd Sohn, ETF strategist at Strategas. “With MTUM, their semi-annual balance methodology has missed the bulk of most sector moves, particularly in what feels like an equity market that sees major moves occur within shorter and shorter time frames.”

MTUM Once Had $18 Billion in Assets