FDMO: A Sophisticated, But Not Better Momentum ETF

seekingalpha05-06

Fidelity Momentum Factor ETF (FDMO) implements a sector-neutral strategy based on price performance, earnings surprise and short interest.It is overweight in technology and large companies.FDMO track ...

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href=https://seekingalpha.com/article/4689630-fdmo-a-sophisticated-but-not-better-momentum-etf><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Fidelity Momentum Factor ETF (FDMO) implements a sector-neutral strategy based on price performance, earnings surprise and short interest.It is overweight in technology and large companies.FDMO track ...</p>\n\n<a href=\"https://seekingalpha.com/article/4689630-fdmo-a-sophisticated-but-not-better-momentum-etf\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"VFMO","symbol_name":"Vanguard U.S. Momentum Factor 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It has 128 holdings, a distribution yield of 0.66% and an expense ratio of 0.15%. As described by Fidelity, the underlying index selects stocks with high momentum characteristics among the largest 1000 U.S. stocks based on market cap. It excludes non-US companies, BDCs and limited partnerships. Four factors are taken into account with different weights to calculate the momentum score:  12-month Return Minus 1-month Return (35%). Volatility-adjusted 12-month Return Minus 1-month Return (35%). 12-month Earnings Surprise (15%). 12-month Average Short Interest (15%, lower is better).  The index is sector-neutral: sectors keep the same weights as in the parent index. The highest ranked stocks of each sector are selected in the index (the number of stocks depends on the sector). Within each sector, stocks are weighted based on their market cap weights. The index is rebalanced quarterly and the portfolio turnover rate in the most recent fiscal year was 137%. FDMO portfolio The portfolio is mostly invested in large and mega caps (about 72% of asset value). Therefore, this article will use as a benchmark the S&P 500 Index, represented by SPDR S&P 500 ETF Trust (SPY). Technology is the heaviest sector by far (28.3% of asset value). Due to the sector-neutral methodology, the sector breakdown is very close to the benchmark. Sector breakdown (chart: author; data: Fidelity, SSGA) The portfolio is quite concentrated. The top 10 holdings, listed in the next table, represent 35.9% of asset value and the top 4 names are between 4% and 7%. Risks related to other individual companies are low.   Ticker Name Weight% EPS growth %TTM P/E TTM P/E fwd Yield%   MSFT Microsoft Corp. 6.69% 25.11 35.24 34.47 0.74   AAPL Apple, Inc. 5.81% 9.26 28.52 27.90 0.55   NVDA NVIDIA Corp. 5.37% 585.45 74.38 35.05 0.02   GOOGL Alphabet, Inc. 4.04% 45.00 25.65 22.36 0.48   AMZN Amazon.com, Inc. 3.84% 763.59 52.30 41.48 0   META Meta Platforms, Inc. 2.29% 115.95 25.96 22.40 0.44   LLY Eli Lilly & Co. 2.19% 7.89 110.07 54.81 0.71   BRK.B Berkshire Hathaway, Inc. 2.03% 528.99 9.06 21.91 0   AVGO Broadcom Inc. 1.91% -8.30 47.38 27.03 1.64   JPM JPMorgan Chase & Co. 1.72% 22.15 11.50 11.74 2.41   Click to enlarge Data: Portfolio123 Fundamentals As reported in the next table, the fund is more expensive than the S&P 500 regarding valuation ratios. However, it is not very far from it. The aggregate price/sales is even marginally cheaper. The earnings growth and sales/growth rates are a bit higher, while cash flow growth is significantly superior.     FDMO SPY   Price/Earnings TTM 26.47 24.39   Price/Book 5.82 4.26   Price/Sales 2.61 2.79   Price/Cash Flow 19.11 16.79   Earnings growth 24.95% 21.92%   Sales growth 9.69% 8.79%   Cash flow growth 19.22% 8.81%   Click to enlarge Performance Since 10/1/2016 FDMO has lagged the S&P 500 by 88 bps in annualized return. Risk metrics (volatility and drawdown) are similar to the benchmark, as reported below.     Total Return Annual Return Drawdown Sharpe ratio Volatility   FDMO 153.95% 13.07% -33.94% 0.7 16.78%   SPY 169.50% 13.95% -33.72% 0.77 16.48%   Click to enlarge Data: Portfolio123 However, FDMO is 6% ahead of SPY over the last 12 months: FDMO vs. SPY, 12-month return (Seeking Alpha) FDMO vs. competitors The next table compares characteristics of FDMO and five other large cap momentum ETFs:  Invesco S&P 500 Momentum ETF (SPMO) iShares MSCI USA Momentum Factor ETF (MTUM) Invesco Dorsey Wright Momentum ETF (PDP) JPMorgan U.S. Momentum Factor ETF (JMOM) Vanguard U.S. Momentum Factor ETF (VFMO)      FDMO SPMO MTUM PDP JMOM VFMO   Inception 9/12/2016 10/9/2015 4/16/2013 3/1/2007 11/8/2017 2/13/2018   Expense Ratio 0.15% 0.13% 0.15% 0.62% 0.12% 0.13%   AUM $193.16M $1.17B $9.68B $1.20B $872.92M $534.36M   Avg Daily Volume $1.38M $26.27M $167.33M $2.26M $8.23M $4.71M   Number of Holdings 128 102 128 103 280 594   Assets in Top 10 35.90% 62.83% 42.77% 24.52% 19.34% 13.09%   Turnover 137.00% 81.00% 111.00% 140.00% 43.00% 73.00%   Click to enlarge Data: Seeking Alpha FDMO is the smallest fund of this group regarding assets under management, and the least liquid in dollar volume. The next chart plots total returns, starting on 2/19/2018 to match all inception dates. FDMO is in the middle of the pack and SPMO is ahead of the competition. FDMO vs competitors, since 2/19/2018 (Seeking Alpha) In fact, FDMO has consistently underperformed SPMO since its inception: FDMO vs SPMO, since inception (Seeking Alpha) Takeaway  Fidelity Momentum Factor ETF (FDMO) implements a sector-neutral strategy based on price performance, and to a lesser extent earnings surprise and short interest. It is overweight in technology and large companies. Although FDMO methodology looks more sophisticated than other momentum ETFs, its track record is disappointing. FDMO has underperformed the benchmark and the S&P 500 Momentum Index (represented here by SPMO, reviewed here), whose strategy is much simpler.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2433452503"}