Momentum investing gets ETF twist with Betashares ASX launch

The latest exchange traded fund (ETF) from Betashares to hit the Australian Securities Exchange (ASX) has provided a market-first Australian equities momentum investing strategy.

The Betashares Australian Momentum ETF (MTUM) offers investors “convenient access [and] exposure to a systematic, rules-based momentum investing strategy”, which involves buying stocks that are outperforming due to the success of an existing market trend while selling stocks that have underperformed.

While the strategy has its denouncers that favour traditional stock picking based on fundamental factors, Betashares says it offers both investors and advisers a “unique return profile” that can be leveraged with existing core portfolio components.

Betashares chief executive, Alex Vynokur, said the fund provides an “attractive approach” for individual investors who might normally find a strategy like this difficult to undertake due to time requirements, its susceptibility to behavioural bias and execution costs.

“As a strategy, momentum investing is appealing to a broad range of investors given its performance potential, but it is often difficult to implement due to a range of factors like the time required to manage such a strategy, the identification of outperforming stocks, behavioural bias and execution costs,” he said.

“It’s our view that a systematic, rules-based index approach to momentum investing can assist investors to efficiently access the unique return profile of this style factor.

“The Betashares Australian Momentum ETF combines the performance potential of momentum investing with the convenience of an ETF.

“To that end, MTUM is a complementary addition to our growing range of innovative investment solutions that assist investors and their financial advisers to implement institutional grade strategies within their portfolios.”

MTUM uses a strict rules-based index to prioritise stocks showing robust and consistent momentum while also eliminating the worst performers every two months. The fund’s index orders 200 of the largest stocks on the ASX by their six- and 12-month risk-adjusted returns and picks the top 50 stocks on selection day every two months.

The final portfolio contains the top 50 stocks picked on the last four selection days, which usually provides around 90 stocks with a mix of partial and full weighting allocations depending on how consistently each stock has ranked in the top 50 over the last four selection days.

Stocks that are ranked in the lowest tenth percentile based on their six-month total return figures on the latest selection day are removed from the portfolio.

MTUM’s index has returned 11.1 per cent since its inception in May 2011 as of 28 June 2024, outperforming its S&P/ASX200 Index benchmark by 2.72 per cent.