Beat the market with these momentum ETFs & stocks


U.S. stocks hit multiple highs on several occasions in recent weeks, pushing volatility down. Volatility in the stock market is best represented by the CBOE Volatility Index (VIX), also known as the fear gauge. This fear index plunged to a two-year decade low of 9.77, reflecting no fear or greater complacency in the stock market.

While bouts of some economic data has disappointed recently, the overall economy has been on a solid path buoyed by an impressive labor market, increase in wages, rise in inflation, and increasing consumer spending. Notably, the unemployment rate fell to 4.4%, the lowest level in more than a decade. Additionally, Americans have an optimistic view on the economy with confidence hovering around a 16-year high. The Fed has raised interest rates three times since December 2015 but hinted at a more gradual pace of rate hikes this year. All these factors will likely boost the equity markets.

Additionally, renewed optimism in Trump’s pro-growth policies would propel equity markets higher. Added to the major strength is the landslide victory of centrist candidate Emmanuel Macron in the French presidential election that has erased a wave of populist sentiment sweeping through Europe, the big geopolitical risk weighing on investors’ mind formonths.

Moreover, the Q1 earnings season has been strong with multi-year highest earnings and revenue growth, and beat ratios tracking above historical periods. Total earnings for the S&P 500 index are expected to be up 14.2% on 7.3% revenue growth, per the latest earnings preview and the strongest since 2011, according to Thomson Reuters.

In such a scenario, momentum investing would be a winning strategy for those seeking higher returns in a short spell. This is because the strategy looks to capture profits from buying hot stocks that have shown an uptrend over the past few weeks or months. As such, we have presented five ETFs and stocks that could lead to outperformance in the current market environment.

ETF Picks

iShares Edge 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 Index. It charges 15 bps in fees per year and is the popular choice with AUM of $2.5 billion.

First Trust Dorsey Wright Focus 5 ETF FV

This product tracks the Dorsey Wright Focus Five Index, which provides targeted exposure to five First Trust sector and industry based ETFs that Dorsey, Wright & Associates (DWA) believes have the greatest potential to outperform the other ETFs in the universe. The approach results in a little higher fee of 89 bps per year and has AUM of $2.5 billion.

SPDR Russell 1000 Momentum Focus ETF ONEO

With AUM of $461.9 million, this product targets the large cap securities with a combination of core factors (high value, high quality, and low size characteristics), with a focus factor comprising high momentum characteristics. It follows the Russell 1000 Momentum Focused Factor Index and charges a low fee of 20.

MomentumShares U.S. Quantitative Momentum ETF QMOM

This is an actively managed ETF consisting of stocks having the highest quality momentum. It is often overlooked by investors as depicted by its AUM of $34.9 million and charges 79 bps annually from investors.

Fidelity Momentum Factor ETF FDMO

This fund has accumulated $23.4 million in its asset base within nine months of debut in the market. It tracks the Fidelity U.S. Momentum Factor Index and charges 29 bps in expense ratio.

Stock Picks

Advanced Energy Industries Inc. AEIS

This Colorado-based company is a global leader in the development and support of power conversion. It has seen solid earnings estimate revision of 29 cents for this year over the past seven days with an expected earnings growth of 25.51%. The stock has a Zacks Rank #1 (Strong Buy) and Momentum Style Score of A.

Melco Resorts & Entertainment Limited MLCO

This Hong Kong-based company is a developer, owner and operator of casino gaming and entertainment casino resort facilities primarily in Asia. It saw solid earnings estimate revision of 18 cents over the past seven days with an expected impressive earnings growth of 82.63%. The stock has a Zacks Rank #1 and Momentum Style Score of A.

WellCare Health Plans Inc. WCG

This Florida-based company provides managed care services for government-sponsored health care programs. It saw whopping earnings estimates revision of 66 cents for this year over the past seven days with an expected earnings growth of 15.91%. The stock has a Zacks Rank #1 and Momentum Style Score of A.

Bridgepoint Education Inc. BPI

This California-based company is a provider of postsecondary education services. It has seen solid earnings estimate revision of 33 cents for this year over the past seven days with a whopping expected earnings growth of 263.89%. The stock has a Zacks Rank #1 and Momentum Style Score of A.

FormFactor Inc. FORM

This California-based company designs, develops, manufactures, sells and supports precision, high-performance, advanced semiconductor wafer probe cards. It saw solid earnings estimate revision of 13 cents for this year over the past seven days with an expected massive earnings growth of 134.56%. The stock has a Zacks Rank #2 (Buy) and Momentum Style Score of A.

FormFactor, Inc. (FORM): Free Stock Analysis Report

FT-DORSEY WFFF (FV): ETF Research Reports

ISHRS-MSCI US M (MTUM): ETF Research Reports

FID-MOM FACTOR (FDMO): ETF Research Reports

SPDR-R1000 MF (ONEO): ETF Research Reports

MOM-US QUANT MO (QMOM): ETF Research Reports

WellCare Health Plans, Inc. (WCG): Free Stock Analysis Report

Bridgepoint Education, Inc. (BPI): Free Stock Analysis Report

Advanced Energy Industries, Inc. (AEIS): Free Stock Analysis Report

Melco Crown Entertainment Limited (MLCO): Free Stock Analysis Report

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