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Perhaps a Better Way to Momentum With ETFs


Among investment factors, momentum is one of the most discussed and it is easily accessible via an array of exchange traded funds. That includes the newly minted PowerShares S&P 500 Momentum Portfolio (SPMO) .

The PowerShares S&P 500 Momentum Portfolio, which debuted less than two weeks ago, tries to reflect the performance of the S&P 500 Momentum Index, which is comprised of 100 high momentum S&P 500 components.

“The Index tracks the performance of stocks in the S&P 500 Index that have a high “momentum score”. The Fund and Index are reconstituted and rebalanced twice a year on the third Fridays of March and September. Constituents are weighted by their market capitalization and their momentum score,” according to PowerShares.

“In selecting securities for the underlying index, the S&P 500 momentum index first calculates the momentum score of each security in the S&P500 by evaluating the change in its price over the last 12-months, excluding the most recent month. After that it applies an adjustment to that total based on the security’s volatility over that period,” according to a Seeking Alpha post.

SPMO resembles some other momentum ETFs at the sector level as consumer discretionary and health care stocks combine for over 60% of the new ETF’s weight. Seven of SPMO’s top 10 holdings, a group that combines for approximately 40% of the ETF’s weight, are either consumer discretionary or health care names.

“Factor based indices continue to increase in popularity for investors who seek alternatives to traditional market-cap weighted indices,” Vinit Srivastava, Senior Director of Strategy Indices at S&P Dow Jones Indices, said in a statement.

Amazon.com (AMZN) is SPMO’s largest holding at a weigh of 5.4%.

“Momentum as an investment strategy has always been one of my favorite tactics in the stock market. As momentum is simply defined as ‘following the herd’, this new ETF comes as a good addition to the wide variety of instruments we can invest in today,” notes the Seeking Alpha article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.