It’s not typically in ETF Land that we see a very new tackle an previous theme, however that’s precisely what occurred final week with the launch of the Proshares Nasdaq-100 Dorsey Wright Momentum ETF (QQQA).
QQQA is the primary factor-based ETF primarily based on the Nasdaq 100 Index, the benchmark that underpins the uber-popular Invesco QQQ Belief (QQQ).
It makes use of a momentum funding method, which makes an attempt to realize publicity to shares which can be rising and cut back publicity to ones which can be falling.
Lately Lara Crigger, the Managing Editor for ETF Traits, sat down with ProShares world funding strategist Simeon Hyman to study extra about how QQQA matches right into a portfolio, and why now is perhaps the best second for momentum investing.
Crigger: Please inform us somewhat concerning the new fund. Why companion with Dorsey Wright for the product?
Hyman: Dorsey Wright is probably the main voice in making use of momentum. Their method is adopted by billions of {dollars} in asset administration, and their instruments are utilized by advisors and portfolio managers all over the world.
To us, it was a no brainer to wrap the Nasdaq-100, the quintessential massive cap development index, along with the main voice in momentum. Actually, we have been simply stunned that no person had achieved this earlier than.
Crigger: Momentum investing is all about making the most of upward developments. Because the economic system reopens, why is now the precise time for that method?
Hyman: The factor that individuals neglect about momentum, which makes it much less a query of timing and extra of an evergreen technique, is that it tells you not simply what to purchase, however what not to purchase. These two issues are two sides of the identical coin.
In order an element, I do not suppose there’s ever actually a foul or time for momentum investing. It’s an efficient information, up there with any of the opposite elements.
Crigger: True. And even past issue investing, particularly, a lot of funding efficiency is avoiding stinkers, proper? It isn’t simply discovering the outperforming shares, however ensuring that you just’re not invested in shares which can be going to tank.
Hyman: Sure. [QQQA’s] technique picks out the 21 shares within the NASDAQ 100 Index that rank highest on the Dorsey Wright momentum rating. Then we equally weight them. That equal weighting is essential too, as a result of there’s a number of top-heaviness within the NASDAQ 100, and within the massive cap development house generally. Equal weighting is an efficient portfolio building method to drive towards the very best risk-reward mixture.
Crigger: However isn’t 21 holdings pretty concentrated?
Hyman: Twenty-one [holdings] is type of a kind of basic numbers someplace within the 20-30 vary, the place the old-fashioned inventory selecting literature discovered that candy spot between focus and diversification.
Crigger: Why take an index method? As a result of momentum funding can change shortly, however the index rebalances solely a few occasions a yr. So how do you keep away from all the time shopping for excessive and promoting low?
Hyman: The index is reconstituted quarterly. That’s a fairly respectable place to be. In a momentum technique, it’s important to let the winners run somewhat bit. So you do not really need swap this factor round as soon as a month. That might in all probability be somewhat too incessantly. However you definitely would not wish to do it yearly. Very similar to how 21 [holdings] was a candy spot of focus/diversification, we anticipate quarterly to be steadiness between letting the winners run, and refreshing the rating on an applicable periodicity.
Crigger: Momentum ETFs are typically dominated by tech shares, and the NASDAQ 100 Index is already very tech heavy. So that you’re doing tech on high of tech, momentum on high of momentum. How do you see this becoming right into a portfolio?
Hyman: I’m going to assert what you stated as a function, not a bug. One of many challenges of momentum investing is that, in case you’re fishing within the very broad market universe, the fund can actually change its stripes on you. In impact, you could possibly have a price fund for a short while, then have a development fund. Issues can transfer round loads. However right here, they’re going to maneuver round rather less, as a result of we’re solely fishing within the NASDAQ 100.
We all know precisely the place this goes in your portfolio. That is unabashedly the big cap development part of your core fairness holdings. And it’ll it’s going to just about behave like that as a result of we’re selecting from the NASDAQ 100. You would additionally deploy it as an element satellite tv for pc, too.
For extra information, info, and technique, go to the Nasdaq Portfolio Options Channel.
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The views and opinions expressed herein are the views and opinions of the creator and don’t essentially replicate these of Nasdaq, Inc.