10 Best Momentum ETFs To Buy

Published on March 27, 2024 at 8:38 am by Hamna Asim in ETF Trading, Lists, News

In this article, we discuss 10 best momentum ETFs to buy. If you want to skip our discussion on momentum investing and the stock market outlook, head over to 5 Best Momentum ETFs To Buy.

What is Momentum Investing?

Momentum investing refers to a strategy that increases portfolio exposure to stocks with robust performance while lowering exposure to those with weaker performance. This approach revolves around buying stocks with upward-trending prices and it has been historically backed by economic theory and empirical evidence. Typically targeting a 12-month timeframe, momentum strategies consistently record positive returns and add diversity to investment portfolios. According to BlackRock, the concept of momentum can be best grasped through behavioral finance theories. It stems from investors’ behavioral tendencies, where individual actions reinforce market trends. Moreover, momentum rewards may offset the risk of short-term underperformance that some investors avoid. Despite occasional short-term setbacks, like those seen in 2001, 2009, and 2023, momentum consistently offers lasting benefits. Both risk-based and behavioral-based explanations play a role in its persistence, supporting the belief that momentum will remain a viable strategy in the future.

Momentum Gaining Momentum

The renewed interest in Bitcoin and the stock market suggests that there might be a big bubble forming. While gold’s record contradicts this notion to some extent, hinting at genuine caution driven by concerns over unsustainable fiscal spending, signs of things getting too heated are still there. According to a recent Bloomberg report, when looking closely at how stocks in the S&P 500 index are moving, there is a similar pattern to what happened during the big bubble in the late 1990s and early 2000s. People are doing really well by purchasing stocks that have been doing well lately and investing in companies with growing earnings, putting momentum trading and growth investing in the spotlight. These strategies have been doing better than value investing. The current market rally seems to follow these patterns, especially with momentum trading making a strong comeback. Notably, the emergence of the Magnificent Seven as the prevailing investing theme in early 2023 led to a challenging period for momentum trading. However, the current situation differs, with momentum gaining momentum once again.

In January 2024, Charles Schwab’s chief investment strategist Liz Ann Sonders participated in CNBC’s “Last Call” to discuss the markets. Sonders noted that when benchmarks like the S&P 500 and Dow hit record highs, it drives the momentum higher – at least for a while when the market ignores earnings and market fundamentals, focusing on performance only. Similarly, Jeremy Siegel, Wharton School professor, joined CNBC’s ‘Closing Bell’ on March 8, 2024. Siegel talked about momentum investing trending these days, but he also said that in his experience, trending stocks might see a slump of a few days before getting back on an upwards trajectory. However, by then, most momentum investors have already pulled out of their holdings. The investors then quickly hop onto the trades they just sold to reap the benefits of the ongoing market rally. He noted that individuals need ‘nerves of steel’ for momentum investing. Siegel observed that momentum followers usually do not care about a company’s valuation, its management, or its operational efficiency. They just look at current performance charts and jump on, leading select companies to skyrocket, sometimes even without proper fundamentals supporting the growth. Siegel stated that momentum investors believe in ‘making the trend your friend’ and they are confident that they can ‘jump off the train before it falls off the cliff’.

However, on March 26, 2024, Liz Young, SoFi head of investment strategy, appeared on ‘Closing Bell’ and said that momentum in equities is fading. Breaking down her statement, she highlighted that from October to December 2023, momentum and high beta led the markets. Heading into 2024, momentum was still leading but slightly slowing down, with investor focus shifting to low volatility and quality stocks. Young observed that in March, low volatility, quality, value, and dividends are leading the rally. In terms of the momentum behind the market rally itself, Young commented that the velocity and fervor is fading but the rally is not about to be over entirely. There is room for stocks to continue skyrocketing. Although, the rebalance at the end of Q1 2024 could pose a risk to momentum followers.

Some of the top momentum stocks to buy include Meta Platforms, Inc. (NASDAQ:META), Microsoft Corporation (NASDAQ:MSFT), and NVIDIA Corporation (NASDAQ:NVDA). However, we discuss the best momentum ETFs in this article.

Our Methodology

We curated our list of the best momentum ETFs by choosing consensus picks from multiple credible websites. We have mentioned the 5-year share price performance of each ETF as of March 26, 2024, ranking the list in ascending order of the share price. We have also discussed the top holdings of the ETFs to offer better insight to potential investors.

A view of the hustle and bustle of trading activity on a busy trading floor.

Best Momentum ETFs To Buy

10. Invesco Dorsey Wright Momentum ETF (NASDAQ:PDP)

5-Year Share Price Performance as of March 26: 74.06%

Invesco Dorsey Wright Momentum ETF (NASDAQ:PDP) is based on the Dorsey Wright Technical Leaders Index, comprising about 100 US companies from the NASDAQ US Benchmark Index. It utilizes a proprietary methodology by Dorsey, Wright & Associates, LLC to select firms showing strong relative strength characteristics. As of March 25, 2024, Invesco Dorsey Wright Momentum ETF (NASDAQ:PDP) expense ratio came in at 0.62%. The fund was launched on March 1, 2007. It ranks 10th on our list of the best momentum ETFs.

O’Reilly Automotive, Inc. (NASDAQ:ORLY) is one of the top holdings of Invesco Dorsey Wright Momentum ETF (NASDAQ:PDP). It is a retailer and supplier of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States, Puerto Rico, and Mexico. On February 7, O’Reilly Automotive, Inc. (NASDAQ:ORLY) reported a Q4 GAAP EPS of $9.26, beating market estimates by $0.05, and a revenue of $3.83 billion, missing Street consensus by $30 million.

According to Insider Monkey’s fourth quarter database, 52 hedge funds were long O’Reilly Automotive, Inc. (NASDAQ:ORLY), compared to 45 funds in the prior quarter.

Like Meta Platforms, Inc. (NASDAQ:META), Microsoft Corporation (NASDAQ:MSFT), and NVIDIA Corporation (NASDAQ:NVDA), O’Reilly Automotive, Inc. (NASDAQ:ORLY) is one of the best momentum stocks to invest in.

Wedgewood Partners stated the following regarding O’Reilly Automotive, Inc. (NASDAQ:ORLY) in its fourth quarter 2023 investor letter:

“O’Reilly Automotive, Inc. (NASDAQ:ORLY) was also a bottom contributor to portfolio performance. The Company reported +11% sales growth for the quarter, driven by a +17% increase in sales to professional service providers, leading to +12% growth in operating income and +17% increase in earnings per share. The Company – true to its long capital allocation culture – has aggressively bought back shares over the past 12 months. O’Reilly Automotive’s professional sales segment continues to dramatically outpace its publicly traded competitors. The Company has a mostly singular focus on the United States, whereas several of its competitors have diverted their attention away from the large and fragmented U.S. professional market, toward non-U.S. or non-automotive markets. In the short-term, investors are focused on the mild weather that has unfolded during the late fall and early winter of 2023. Mild weather often leads to temporary slowdowns in sales growth for auto parts, but we would look to take advantage of that because O’Reilly’s long-term competitive positioning and extraordinary returns on capital are well-entrenched.”

9. Invesco DWA SmallCap Momentum ETF (NASDAQ:DWAS)

5-Year Share Price Performance as of March 26: 76.65%

Invesco DWA SmallCap Momentum ETF (NASDAQ:DWAS) tracks the Dorsey Wright SmallCap Technical Leaders Index, which selects approximately 200 companies based on their market performance and relative strength characteristics according to a proprietary methodology by Dorsey, Wright & Associates, LLC. These companies are chosen from the NASDAQ US Benchmark Index. As of March 25, 2024, Invesco DWA SmallCap Momentum ETF (NASDAQ:DWAS)’s expense ratio came in at 0.60%. It is one of the best momentum ETFs to buy.

Modine Manufacturing Company (NYSE:MOD) is the largest holding of Invesco DWA SmallCap Momentum ETF (NASDAQ:DWAS). The company specializes in providing engineered heat transfer systems and components for OEM vehicular applications. On March 19, Oppenheimer assigned an Outperform rating to Modine Manufacturing Company (NYSE:MOD) and set a price target of $105. Analyst Noah Kaye highlighted Modine Manufacturing Company (NYSE:MOD)’s expansion into data centers and diversification as drivers for potential positive earnings revisions. Additionally, Kaye noted the company’s involvement in scaling electric vehicles and the potential for mergers and acquisitions in climate solutions as further catalysts for growth.

According to Insider Monkey’s fourth quarter database, 28 hedge funds were bullish on Modine Manufacturing Company (NYSE:MOD), compared to 30 funds in the prior quarter.

Carillon Chartwell Small Cap Value Fund made the following comment about Modine Manufacturing Company (NYSE:MOD) in its Q3 2023 investor letter:

“Modine Manufacturing Company (NYSE:MOD) was another strong performer. Modine’s performance technologies segment is experiencing high demand as it provides thermal solutions for electronic vehicle (EV) and hybrid vehicle manufacturers. The company also has focused on growth opportunities in the data-center market, selling data center cooling solutions needed for energy intensive artificial intelligence (AI) projects.”

8. Fidelity Momentum Factor ETF (NYSE:FDMO)

5-Year Share Price Performance as of March 26: 78.85%

Fidelity Momentum Factor ETF (NYSE:FDMO) ranks 8th on our list of the best momentum ETFs. Fidelity Momentum Factor ETF (NYSE:FDMO) aims to replicate the performance of the Fidelity U.S. Momentum Factor Index before fees and expenses. This index is tailored to mirror the performance of large and mid-cap US companies showing positive momentum signals. As of December 31, 2023, the ETF has net assets of $161.4 million and an expense ratio of 0.15%, along with a portfolio of 130 stocks.

Apple Inc. (NASDAQ:AAPL) is the largest holding of Fidelity Momentum Factor ETF (NYSE:FDMO). Despite reports of weaker demand in China, Apple’s iPhone builds remained stable, while competitors Samsung and Huawei saw increases in the first quarter of 2024, surpassing TD Cowen’s projections as of March 26. However, TD Cowen expects Apple Inc. (NASDAQ:AAPL) to produce 48 million iPhone units in Q1 2024, marking a 14% year-over-year decrease, with a further decline to 39 million units in Q2, representing a 7% drop compared to the previous year.

According to Insider Monkey’s fourth quarter database, 131 hedge funds were bullish on Apple Inc. (NASDAQ:AAPL), compared to 134 funds in the prior quarter. Warren Buffett’s Berkshire Hathaway is the largest stakeholder of the company, with 905.56 million shares worth $174.3 billion.

Orbis Global Equity Strategy stated the following regarding Apple Inc. (NASDAQ:AAPL) in its fourth quarter 2023 investor letter:

“Never before has following the crowd made so much money. Nor, in our estimation, so little sense. But just look at the opportunities the crowd has left for those of us willing to take a different view. We could wax lyrical about the glaring difference in value between Korean banks priced at 4 times earnings, versus Apple Inc. (NASDAQ:AAPL) at 28 times, despite diverging fundamentals—Apple is increasingly at risk of bans in China, while Korean banks could double their dividends.”

7. Invesco S&P SmallCap Value with Momentum ETF (NYSE:XSVM)

5-Year Share Price Performance as of March 26: 88.24%

Invesco S&P SmallCap Value with Momentum ETF (NYSE:XSVM) tracks the S&P 600 High Momentum Value Index, which comprises 120 securities from the S&P SmallCap 600 Index with the highest combined “value scores” and “momentum scores”. Constituents of the index are weighted based on their value scores, with higher scores receiving greater weights. As of March 25, 2024, Invesco S&P SmallCap Value with Momentum ETF (NYSE:XSVM)’s expense ratio stood at 0.36%. It is one of the best momentum ETFs to buy.

Kelly Services, Inc. (NASDAQ:KELYA) is the top holding of Invesco S&P SmallCap Value with Momentum ETF (NYSE:XSVM). Kelly Services, Inc. (NASDAQ:KELYA) offers workforce solutions across different industries through its five segments – Professional & Industrial, Science, Engineering & Technology, Education, Outsourcing & Consulting, and International. On February 15, Kelly Services, Inc. (NASDAQ:KELYA) reported a Q4 non-GAAP EPS of $0.93 and a revenue of $1.23 billion, outperforming Wall Street estimates by $0.37 and $10 million, respectively.

According to Insider Monkey’s fourth quarter database, 14 hedge funds were bullish on Kelly Services, Inc. (NASDAQ:KELYA), compared to 10 funds in the last quarter.

Like Meta Platforms, Inc. (NASDAQ:META), Microsoft Corporation (NASDAQ:MSFT), and NVIDIA Corporation (NASDAQ:NVDA), Kelly Services, Inc. (NASDAQ:KELYA) is one of the top stocks for momentum investors.

Here is what Palm Valley Capital Management has to say about Kelly Services, Inc. (NASDAQ:KELYA) in its Q3 2022 investor letter:

“We acquired four new positions during the quarter—two of these were recycled. The Fund bought back Kelly Services (NASDAQ:KELYA), a prior holding, and established a new weighting in ManpowerGroup (NYSE:MAN). Both companies serve the staffing industry. Staffing is cyclical, and we expect results for these companies to deteriorate in a recession, even though margins haven’t fully recovered yet from the lockdowns. In our judgment, during previous downturns, their operating performance was acceptable for a cyclical trough. We believe the valuations for Kelly and Manpower are becoming increasingly compelling. Kelly trades at a 46% discount to tangible book value. The company’s net assets are primarily supported by a mountain of receivables. Neither Kelly nor Manpower experienced significant credit losses during the last recession. ManpowerGroup’s $4 billion Enterprise Value is 6.7x its five-year average operating income before amortization, which includes a trough in 2020. Manpower is based in the U.S., but it earns the majority of revenues from Europe. We think the firm’s European exposure has placed it in the doghouse among investors, given the unique risks facing those economies. Manpower’s translated results are also weighed down by the rocketing U.S. dollar…” (Click here to see the full text)

6. Vanguard U.S. Momentum Factor ETF ETF Shares (BATS:VFMO)

5-Year Share Price Performance as of March 26: 90.11%

Vanguard U.S. Momentum Factor ETF ETF Shares (BATS:VFMO) employs a rules-based quantitative model to assess US common stocks, focusing on those with robust recent performance. The fund’s portfolio encompasses a range of stocks across different market capitalizations, market sectors, and industry groups. Its benchmark is the Russell 3000 Index. Vanguard U.S. Momentum Factor ETF ETF Shares (BATS:VFMO) is one of the best momentum ETFs to monitor. As of March 25, 2024, the fund’s expense ratio came in at 0.13%, along with net assets of $452.1 million and a portfolio of 574 stocks.

Meta Platforms, Inc. (NASDAQ:META) is the largest holding of Vanguard U.S. Momentum Factor ETF ETF Shares (BATS:VFMO). On March 18, Mizuho Securities added Meta Platforms, Inc. (NASDAQ:META) as a top pick, maintaining a Buy rating and a $575 price target on the shares. Analyst James Lee predicts stron

g revenue growth for the company in fiscal 2024, driven by improvements in Reels monetization, geographic expansion, Amazon partnership with Shops, and optimized video placements. Long-term investments in WhatsApp, generative AI, and Llama could also lead to a significant increase in revenue per user.

According to Insider Monkey’s fourth quarter database, 242 hedge funds were bullish on Meta Platforms, Inc. (NASDAQ:META), compared to 234 funds in the last quarter.

Sequoia Fund stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its fourth quarter 2023 investor letter:

“Two additional trims, in Meta Platforms, Inc. (NASDAQ:META) and Carmax, were more substantive in nature. When Meta’s stock declined in 2022, we judged it to be significantly mispriced and held our ground through the bottom. We trimmed the position serially last year as the stock soared because we were wary of holding a large position exposed to significant regulatory risks, particularly in Europe. We are comfortable owning Meta at today’s much-reduced weighting and current valuation. The smaller position size reflects our updated assessment of the balance of long-term risk versus reward.”

Click to continue reading and see 5 Best Momentum ETFs To Buy.

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Published on November 16, 2024 at by Insider Monkey Staff

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