Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

For regular SAA and TAA portfolios, the next re-balance will be on Monday, October 14, 2019. You can also find the re-balance calendar for 2019 on ‘Dashboard‘ page once you log in.

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Please note that we now list the next re-balance date on every portfolio page.

Momentum Factor Stock ETFs

MyPlanIQ has tracked and studied momentum based investing since we started ten years ago. We regularly reviewed this investment methodology at various levels. See, for example, April 30, 2018: Momentum Investing Review that looked at momentum investing at stocks, industrial, sector and asset levels. 

In this newsletter, we look at momentum stock level ETFs, in particular, iShares MSCI USA Momentum Factor MTUM that has had an outstanding performance so far. 

Momentum factor stock ETFs performance

Major momentum based managers include MSCI Momentum index, S&P Momentum index, DWA and AQR (that mainly provides mutual funds). The following table shows momentum ETFs with the most AUM (Asset Under Management) (courtesy of 

The third largest momentum ETF XMMO was a mid cap growth ETF until June this year when it changed to track S&P mid cap 400 momentum index. Its performance is thus not very meaningful at all. iShares MTUM is a very popular ETF with $10.8B AUM, 8x of the second largest one PDP. 

The following table compares the top two ETFs, along with AQR’s flagship momentum fund AMOMX: 

Momentum ETF Performance Comparison (as of 9/6/2019):
Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
MTUM (iShares MSCI USA Momentum Factor) 23.7% 7.0% 17.8% 14.7%    
PDP (PowerShares DWA Momentum ETF) 27.1% 4.0% 14.1% 9.4% 14.1% 0.79
AMOMX (AQR Momentum L) 24.5% 5.1% 13.5% 9.8% 13.6% 0.77
VTI (Vanguard Total Stock Market ETF) 19.9% 3.9% 12.6% 9.9% 13.6% 0.87

5 Year chart:

Some observations: 

  • AQR fund and PowerShares ETF have performed pretty much in par with broad market index VTI. 
  • iShares MTUM has done way better than the other two momentum funds as well as VTI. For the past 5 years, for example, its annualized return (AR) 14.7% is way better than VTI’s 9.9% (and the other two’s). 
  • MTUM also has a very low expense ratio 0.15% that’s competitive. 

The MSCI Momentum factor indexing is also showing better result in its much smaller (AUM $180M) international stock ETF IMTM: 

Intl Stock Momentum ETF Performance Comparison (as of 9/6/2019):
Name 1Yr AR 3Yr AR 5Yr AR Since 1/28/15* 10Yr AR
IMTM (iShares Edge MSCI Intl Momentum Factor ETF) 4.0% 6.5%   5.0%  
PIZ (PowerShares DWA Developed Mkts Mom ETF) -0.4% 5.6% 2.4% 4.2% 6.7%
AIMOX (AQR International Momentum L) 0.8% 4.7% 1.6% 3.7% 5.0%
VEA (Vanguard FTSE Developed Markets ETF) -0.2% 5.5% 2.5% 4.5% 5.4%

*: IMTM inception date

Note PIZ has more than 10 year history and it has outperformed international stock index VEA for that period. This performance comparison is useful as international stocks, unlike US stocks, have struggled for the past several years. It shows how momentum method has done in a less trendy environment. 

AQR is a noted hedge fund turned to mutual fund manager. It’s considered to be a very good trend/momentum investor. DWA, Dorsey Wright Associates is also a traditional momentum manager. Apparently, MSCI momentum indexing has shown some consistent outperformance over these two active managers. 

The MSCI momentum indexing method

It’s thus interesting to understand how the MSCI momentum indexing (that both MTUM and IMTM are based upon) works. Based on MSCI, here is the more detailed index performance info:


Since 1994, it has outperformed the index by 3.5% annually! It had a slightly bigger maximum drawdown (55.94%) than its traditional market cap based index (54.91%). 

Its indexing methodology is described as follows: 

A momentum value is determined for each stock in the MSCI parent index by combining the stock’s recent 12-month and 6-month local price performance. This momentum value is then risk-adjusted to determine the stock’s momentum score. A fixed number of securities with the highest momentum scores are included in each MSCI Momentum Index, generally covering about 30% of the parent index market cap. Constituents are weighted by the product of their momentum score and their market cap. Constituent weights for broad MSCI Momentum Indexes are capped at 5%. The indexes are rebalanced semiannually; in addition, ad hoc rebalancing may occur, triggered by spikes in market volatility.

A couple of notes: 

  • The momentum scoring is based on last 6-month and 12-month returns (with one month lag) with risk (standard deviation) adjusted. A more detailed description is here
  • Another interesting thing is that the selected stocks with the top momentum scores are weighted by tjeor momentum scores and their market cap. 
  • Furthermore, it tries to cover about 30% of the total market cap in the parent index, even though it generally selects a fixed number of stocks. 
To summarize, MSCI has done a very good job in smart factor algorithm/indexing. Its momentum and quality stock factor (QUAL (iShares Edge MSCI USA Quality Factor ETF), see July 15, 2019: Quality Stock Factor ETFs for more details) indexes are very competitive. So far, these index based ETFs have shown they can add additional value to traditional market cap weight based indexes. 

Market overview

Stocks are hanging tough and staged a recovery last week. We are again back to a familiar but much worse situation than a year ago (Bloomberg’s article A Year After Armageddon, Stock Traders Stare Into a Familiar Abyss vividly described this). With the extended valuation and weakening fundamentals, stocks are vulnerable. As no one can precisely time a market, we call for staying the course while keeping an eye on risk. 

For more detailed asset trend scores, please refer to 360° Market Overview

In terms of investments, even after the recent retreat, U.S. stock valuation is still at a historically high level and a bigger correction is still waiting to happen. It is thus not a good time to take excessive risk. However, we remain optimistic about U.S. economy in the long term and believe much better investment opportunities will arise in the future. 

We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot. 

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