Momentum ETFs to Gain From the New Stimulus Optimism

Sweta Jaiswal, FRM
·5-min read

The optimism surrounding another tranche of coronavirus-aid package and coronavirus-vaccine development is hinting at a Wall Street rally in March. On Mar 6, Senate approved President Joe Biden’s $1.9 trillion-American Rescue Plan Act of 2021. Senate had to amend some provisions of the plan for the approval. Now, the legislation needs to go back to the House that passed the earlier version of the proposal last week. Notably, the legislation is expected to reach President Biden’s table for his signature before unemployment aid programs expire on Mar 14.

The coronavirus relief bill provides direct support to small businesses, $1,400 direct checks to Americans falling under the eligibility criteria, a rise in the child tax credit for a year, direct funding to state and local governments along with funding for schools and increased funds for coronavirus vaccine distribution and testing, per a CNBC article. However, the stimulus checks’ income limits have now been revised and the weekly unemployment benefits have been reduced from  $400 to $300 by the Senate and will now run through September as stated in the above-mentioned article.

According to a CNBC article, “The package also includes $14 billion in payroll support for U.S. airlines, the third round of federal aid for the industry, in exchange for not furloughing or cutting workers’ pay rates through Sept. 30. Airline contractors were set aside $1 billion.” 

On the vaccine front, the world will now receive the first single-shot vaccine in the battle against the coronavirus pandemic as the FDA awarded the Emergency Use Authorization (EUA) to COVID-19 vaccine that is developed by the Janssen Pharmaceutical Companies of Johnson & Johnson JNJ. The company also informed that the U.S. Centers for Disease Control and Prevention's (CDC) Advisory Committee on Immunization Practices (ACIP) recommended its COVID-19 vaccine. Johnson & Johnson started shipping and aims at delivering more than 20 million doses to the U.S. government in March and targets 100 million doses in the first half of 2021.

Moving on, Merck & Co., Inc. MRK signed multiple agreements to make available its existing manufacturing facilities for the development of COVID-19 vaccines and medicines after its own efforts to create vaccines failed. It signed a deal with J&J to support manufacturing of the latter’s single-shot COVID-19 vaccine.

Moreover, President Biden informed that the country currently projects to have sufficient COVID-19 vaccines for all adults who want to get vaccinated by the end of May, per a YahooFinance article.

It is believed that wider coronavirus vaccine rollouts and additional stimulus funding will lead to a faster U.S. economic recovery in 2021. Biden is expected to ramp up the distribution of coronavirus vaccines by dispensing more funds to local and state officials, increasing the number of vaccination sites and introducing a nationwide education campaign, per a CNBC article.

Momentum ETFs Worth Your Attention

Momentum investing looks to fetch profits from hot stocks that have shown an uptrend over the past few weeks or months. Here we present five ETFs that could outperform on the current market optimism. Further, these could beat broader market returns in the coming months if the optimism prevails.

iShares MSCI USA Momentum Factor ETF MTUM

This fund provides exposure to large and mid-cap stocks that exhibit relatively higher price momentum by tracking the MSCI USA Momentum SR Variant Index. It charges 15 basis points (bps) in fees per year and is a popular choice, with AUM of $14.13 billion (read: ETF Strategies to Gain From the Stimulus & Vaccine Optimism).

Invesco DWA Momentum ETF PDP

This fund tracks the Dorsey Wright Technical Leaders Index, which measures the performance of companies that demonstrate powerful relative strength characteristics. It has amassed $1.78 billion in its asset base and charges 62 bps in annual fees (read: Buy High-Beta & Momentum ETFs to Follow J.P. Morgan's Vision).

Invesco S&P MidCap Momentum ETF XMMO

This ETF follows the S&P Midcap 400 Momentum Index, which is designed to identify mid-cap firms with the highest momentum scores. XMMO has AUM of $926.4 million and an expense ratio of 0.34% (read: ETF Investing Areas Looking Attractive After a Blue Wave).

VictoryShares USAA MSCI USA Value Momentum ETF ULVM

This fund tracks the MSCI USA Select Value Momentum Blend Index, offering exposure to large and mid-cap companies with higher exposure to value and momentum factors, while maintaining a moderate turnover and lower realized volatility compared with the traditional capitalization weighted indices. It accumulated $517.1 million in AUM and charges 0.20% in expense ratio.

SPDR Russell 1000 Momentum Focus ETF ONEO

With AUM of $256.5 million, this product targets large-cap securities with a combination of core factors (high value, high quality and low size characteristics) and a focus factor comprising high momentum characteristics. It follows the Russell 1000 Momentum Focused Factor Index and charges an annual fee of 20 bps (read: 4 Momentum ETFs That Still Offer Value).

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