Diversifying your portfolio for a successful retirement involves analyzing potential investment options before you make a move. Today we're going to look at the Vanguard Momentum Factor ETF. Some analysts say that it's a good bet while others don't necessarily agree. Should you invest in the Vanguard Momentum ETF? Here are the facts about the option to help you determine if it is the right move for your situation.
What is the Vanguard Momentum ETF?
Vanguard describes this exchange-traded fund as a fund that invests in stocks with strong recent performance. This fund seeks long-term capital appreciation with a minimum of 80 percent of the assets of the fund invested in securities that are issued by companies with origins in the United States, otherwise known as domestic stocks. Further analysis reveals that the portfolio of the fund consists of a diverse group of stocks from various market capitalizations. These include stock investments from large, mid, and small, from a broad range of industry groups and market sectors. The holdings of the ETF are diverse. The Vanguard Momentum Exchange-Traded Fund falls in the category of the equity sector. The listing is under the IOV ticker symbol VFMO.IV. The expense ratio for this fund is at 0.13%. The fund is weighted by the top 10 performing assets. This fund follows the Russell 3000 Index based on the industry classification benchmark.
The composition of the Vanguard Momentum ETF
The Vanguard Momentum ETF holdings include equity diversification distributed across 11 sectors of the market. These include basic materials, consumer discretionary, consumer staples, energy, financials, health care, industrials, real estate, technology, communications, and utilities. The investment strategy helps to provide a diverse structure for dips in certain sectors which are generally offset by better performance in others. The total number of stocks in the holdings is 655 with a net asset total for the fund of $58 million. The 10 largest holdings make up 13.9 percent of the fund with 0.3 percent in foreign holdings.
The 10 largest holdings
The Vanguard Momentum's most recent top holdings include a list of 10 large-cap companies. They make up 13.90 percent of the total asset base. The list includes Square Inc, NVIDIA Corp., Apple Inc., Tesla Inc., Advanced Micro Devices Inc., MercadoBibre Inc., Amazon.com Inc., PayPal Holdings Inc., ServiceNow Inc., and Newmont Corporation.
Why you might want to consider investing in Vanguard Momentum ETF
US News shares the most recent information about the performance of the ETF. The goal of management is to invest in common US stocks with the potential for generating higher returns within the equity market. This is a fund that seeks long-term appreciation through a strategy that continually analyzes the performance of its holdings to maintain the highest allocations within the top ten performing stocks within that diverse group. It's encouraging that the YTD Return is 16.59 percent with a 1-Year Return of 22.27 percent. In the last two weeks, the net assets of the fund's holdings have increased by more than $2 million which shows growth in a short time. The volume flows at average daily trading of 7,262 with 600,000 shares outstanding.
Additional information on weighting
The Vanguard Momentum ETF has the highest concentration of weighting in the technology sector at 27.81 percent. It's followed by holdings in the healthcare sector at 25.14 percent. Next is consumer cyclical at 14.37 percent, communication services at 8.81 percent, and financial services at 5.37 percent. In terms of geography, 98.1 percent of holdings are within the United States followed by 1.4 percent in Latin America, 0.2 percent in the Middle East, and 0l1 percent in Canada and the Asia Emerging sector.
Concerns about the Vanguard Momentum ETF
iMarket Signals points out a few areas of concern with the fund. It suggests that it might be time to retire the fund. The analysts discovered that there are flaws with the selection criteria for the Vanguard fund. When compared with SPY, the performance of VFMO since the time of its launch is lower than SPY by 6.8 percent. It is believed that the returns will be even lower by February of 2021 at the one-year return assessment point. iMarket analysts remain convinced that the rule-based strategy is not the optimum method for selecting assets for investment and that higher performance of the overall fund could be achieved through a different selection strategy.
Recommendations for evaluating an ETF
Morningstar ETF Investor suggests that Momentum's strength has been in its investment in certain sectors during the times of the bubble, however, bubbles do burst and when they do, the reversal is violent. In recent years, however, the large-cap momentum stocks have risen again to outperform the smaller-cap stocks. It's difficult to predict these ups and downs and Momentum is difficult to reign in. The friction of the real world impedes the prediction of the performance to relevant benchmarks. They further recommend that investors considering investing in this fund are wise to scrutinize the processes to understand how assets are selected, along with how they are weighted and what constraints may be in place. There is a high-risk for a crash that is somewhat mitigated by the extreme diversity of the holdings.
There are several considerations to make when determining which investment to make. The Vanguard Momentum ETF provides exposure to a diverse group of stocks within 11 sectors of the market. The highest concentration of holdings exists within the United States common stocks. Technology and Healthcare among the most heavily weighted by the performance benchmarks. Analysts have cited a few concerns about the selection process and the rule-based criteria used to choose the investments for the fund. Vanguard Momentum is transparent. Potential investors have a full view of the selection processes and the performance of stocks to make their analysis. Should you invest in the Vanguard Momentum ETF? If you're looking for a long-term investment with the potential for high yield along with the accompanying risks involved, you may want to discuss this one with your financial advisor.
Written by Allen Lee
Read more posts by Allen Lee