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Wall Street has been on the rise in recent months, fueled by the surge in technology, easing inflation, stronger-than-expected corporate earnings and hopes that the Fed is nearing the end of its interest rate hike cycle. However, hedge funds and other speculative investors have built up their most bearish position on the stocks since 2007, making investors’ jittery.
 
Against this backdrop, momentum investing would be a winning strategy for those seeking higher returns in a short spell. While momentum has been felt in most of the corners of the market, Invesco DWA Technology Momentum ETF (PTF - Free Report), VanEck Social Sentiment ETF (BUZZ - Free Report), Invesco DWA SmallCap Momentum ETF (DWAS - Free Report), Invesco S&P SmallCap Value with Momentum ETF (XSVM - Free Report) and U.S. Quantitative Momentum ETF (QMOM - Free Report) are leading the space over the past month.

The S&P 500 is heading toward a bull market, following a 19.7% rally from the October 2022 lows. The six technology bigwigs — Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Alphabet (GOOGL, GOOG), Amazon (AMZN), and Meta Platforms (META) — drove 100% of the rally in the S&P 500. Bank of America strategist Michael Hartnett calls these stocks, including Tesla (TSLA), the “Magnificent Seven.” These stocks have together added $3.35 trillion in market value this year.  

Meanwhile, the tech-heavy Nasdaq Composite Index wrapped up a historic month, outperforming the Dow Jones by the widest margin since October 2001, fueled by the artificial intelligence (AI) boom.

Why Momentum? 

Momentum investing is an investment strategy that aims to capitalize on the continuance of an existing market trend. It involves the purchase of assets that have been showing an upward trend in price or selling short assets that have been showing a downward trend, with the expectation that the trend will continue. As such, investors can potentially achieve high returns by buying stocks in an uptrend and selling them when they show signs of reversing.

Numerous studies have demonstrated the effectiveness of momentum as a factor in stock selection. Momentum strategies have historically performed well across different markets and time periods, although past performance is not indicative of future results.

ETFs in Focus

Invesco DWA Technology Momentum ETF (PTF) – Up 15.2%

Invesco DWA Technology Momentum ETF offers exposure to 41 tech companies that are showing relative strength (momentum) by tracking the Dorsey Wright Technology Technical Leaders Index. Semiconductor & equipment takes the largest share at 39.5%, followed by software (37.9%), and technology, hardware, storage and peripherals (8.9%).

Invesco DWA Technology Momentum ETF is relatively illiquid and unpopular, with AUM of $260.6 million and an average daily volume of 13,000 shares. The fund charges 60 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

VanEck Social Sentiment ETF (BUZZ) – Up 11.8%

VanEck Social Sentiment ETF offers exposure to 75 large-cap U.S. stocks, which exhibit the highest degree of positive investor sentiment and bullish perception based on content aggregated from online sources, including social media, news articles, blog posts and other alternative datasets. This is easily done by tracking the BUZZ NextGen AI US Sentiment Leaders Index.

VanEck Social Sentiment ETF has amassed $59.8 million in its asset base while charging 75 bps in annual fees. It trades in average daily volume of 8,000 shares.

Invesco DWA SmallCap Momentum ETF (DWAS) – Up 6.7%

With AUM of $615.5 million, Invesco DWA SmallCap Momentum ETF offers exposure to the small-cap segment of the broad U.S. stock market with powerful relative strength characteristics. It follows the Dorsey Wright SmallCap Technical Leaders Index, charging 60 bps in annual fees per year. Invesco DWA SmallCap Momentum ETF is skewed toward industrials at 27.04% while healthcare, information technology, and consumer discretionary round off the next spots with double-digit exposure each.

Invesco DWA SmallCap Momentum ETF holds 201 stocks in its basket and trades in an average volume of 67,000 shares.

Invesco S&P SmallCap Value with Momentum ETF (XSVM) – Up 6%

Invesco S&P SmallCap Value with Momentum ETF offers exposure to the companies having the highest "value scores" and "momentum scores" by tracking the S&P 600 High Momentum Value Index. XSVM holds a basket of 116 stocks, each making up for less than 3% share. Invesco S&P SmallCap Value with Momentum ETF has a double-digit allocation each in industrials, consumer discretionary, financials and energy sectors.

Invesco S&P SmallCap Value with Momentum ETF has AUM of $578 million and an average daily volume of 98,000 shares. XSVM charges 36 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy).

U.S. Quantitative Momentum ETF (QMOM) – Up 5.7%

U.S. Quantitative Momentum ETF seeks to provide exposure to stocks with the highest-quality momentum. It holds 51 socks in its basket and charges 39 bps in annual fees.

U.S. Quantitative Momentum ETF has amassed $135.2 million in its asset base and trades in volume of 16,000 shares a day on average.

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