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Updated 2mo ago.
Updated 2mo ago.
Momentum is an investment strategy that involves buying securities that have performed well recently and avoiding those that have underperformed, based on the assumption that trends tend to persist in the short to medium term.
WXM.TO (iShares MSCI USA Momentum Factor ETF) selects U.S. stocks that have risen the most over the past 6 to 12 months and overweights them. If tech stocks are surging, the ETF will have more exposure to them. Conversely, if energy takes the lead, the ETF will adjust its holdings at the next rebalancing. The MER is higher than a standard index ETF (~0.30% vs 0.10%).
Momentum is one of the best-documented investment factors in academic research. However, it can lead to significant losses during market reversals (when trends suddenly flip). For a beginner investor, an all-in-one ETF is more appropriate. Momentum is more of a complement for investors who want to "tilt" their portfolio toward this factor after mastering the basics.