Momentum ETF Could Add Financials, Energy in Rebalancing, Market Analyst Says

Lucy Nicholson | Reuters

One popular momentum ETF is set to change its stripes.

The iShares MSCI USA Momentum Factor ETF (MTUM) will undergo its semiannual rebalancing at the end of May, taking into consideration how the market has changed over the last six months and adjusting accordingly.

While the fund rebalances at the end of May, it will focus on the six-month period ending in April, using an algorithm to find the most momentum-friendly plays from that time frame.

That could bring entirely new stock groups into the mix, said Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA Research.

"The last six months have been really strong for financials, which is little to no exposure within MTUM, and energy, where there is no exposure," Rosenbluth told CNBC's "ETF Edge" on Monday. "We believe that we're going to see an increase in exposure in financials and we're going to see a reinitiation of energy companies."

MTUM, which is currently is weighted most heavily in the technology, consumer discretionary and health sectors, could also do away with high-growth stocks such as Amazon, Rosenbluth said.

MTUM isn't alone in its shift. All five of iShares' main factor ETFs — momentum, quality, value, minimum volatility and size — will rebalance at the end of May.

The sector-neutral value ETF could also see some important changes, Rosenbluth said.

"In technology, some of the more deeper-value stocks have risen and ... some of the higher-growth stocks have fallen," he said. "We could actually see VLUE owning more of the traditional growth stocks within the technology sector among other sectors."

That's unlikely to stop investors' escalating interest in factors, BlackRock's head of iShares Americas, Armando Senra, said in the same "ETF Edge" interview.

"In factors, which lately … don't get a lot of attention, we're seeing some of the strongest flows on the back of the reopening trade into our value portfolio and other single-factor offerings that we have," he said. "So, factors is something that investors are really utilizing in 2021. We didn't see a lot of flow in 2020. That is also changing in 2021."


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