High beta and worth shares are outperforming the S&P 500 this yr whereas momentum names are being left behind.
For affected person traders, that state of affairs might show inviting relating to evaluating the newly minted Proshares Nasdaq-100 Dorsey Wright Momentum ETF (QQQA). QQQA debuted final month as the primary factor-driven spin on the broadly adopted Nasdaq-100 Index (NDX).
Tapping into Dorsey, Wright & Associates’ well-known momentum/relative energy methodology, the brand new ProShares alternate traded fund tracks the Nasdaq-100 Dorsey Wright Momentum Index. A base definition of an equity-based momentum technique is that it’s prone to characteristic shares that carried out effectively over the previous six months or yr. Within the case of QQQA, meaning an virtually 51% to tech shares, which is barely chubby that sector relative to NDX.
“A lot of these shares and sectors at the moment are underperforming, and consequently, some momentum methods have seen important turnover as they endure their rebalancing,” stated ProShares Senior Funding Strategist Kieran Kirwan in a latest notice.
A Higher Momentum Technique?
A rub with many momentum methods is which might be fast to shuffle sector exposures to stay allotted to shares sporting robust momentum traits. That is fantastic to appease near-term wishes, however traders might be left weak when issue management modifications.
“If progress and expertise shares reassert their management, some momentum methods could also be left at a drawback because of their underweighted publicity,” provides Kirwan.
QQQA’s underlying index rebalances on a quarterly foundation, which is acceptable for this technique. It offers the fund’s winners room to breathe and proceed appreciating whereas eschewing frequent rebalancing, which might result in a myopic, near-term focus. Stated one other approach, QQQA helps traders capitalize on the long-term potential of momentum, which might additionally ship over longer time horizons.
As Kirwan factors out, the Momentum Issue Index topped the S&P 500 in every decade from the 1960s onward.
“The index is an intriguing possibility for traders trying to give attention to the shares from the preeminent progress index with the best potential to outperform. It might even be a compelling possibility for these growth-oriented momentum traders on the lookout for better fashion consistency,” concludes Kirwan.
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The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.