VFMO: A Diversified Momentum ETF At Modest Valuation

seekingalpha07-18

Vanguard U.S. Momentum Factor ETF offers well-diversified allocations with modest valuations, making it attractive in a stretched valuation environment.VFMO's top holdings are mostly in the technology...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nVFMO: A Diversified Momentum ETF At Modest Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-18 21:51 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4704790-vfmo-a-diversified-momentum-etf-at-modest-valuation><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Vanguard U.S. Momentum Factor ETF offers well-diversified allocations with modest valuations, making it attractive in a stretched valuation environment.VFMO's top holdings are mostly in the technology...</p>\n\n<a href=\"https://seekingalpha.com/article/4704790-vfmo-a-diversified-momentum-etf-at-modest-valuation\">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":"BK4550","symbol_name":"红杉资本持仓","start_time":0,"source_url":"https://seekingalpha.com/article/4704790-vfmo-a-diversified-momentum-etf-at-modest-valuation","article_id":"2452482298","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/134540404/image_134540404.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2452482298","pubTimestamp":1721310690,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Vanguard U.S. Momentum Factor ETF offers well-diversified allocations with modest valuations, making it attractive in a stretched valuation environment.VFMO's top holdings are mostly in the technology","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4550":"红杉资本持仓","IWV":"iShares Russell 3000 Index Fund","BK4585":"ETF&股票定投概念","BK4588":"碎股","VFMO":"Vanguard U.S. Momentum Factor ETF","FDN":"First Trust Dow Jones Internet I"},"translate_title":"VFMO：估值适中的多元化动量ETF","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"FDN":1,"IWV":1,"VFMO":1},"content_text":"Vanguard U.S. Momentum Factor ETF offers well-diversified allocations with modest valuations, making it attractive in a stretched valuation environment.VFMO's top holdings are mostly in the technology sector, but the fund maintains a diversified investment profile compared to the Russell 3000 index.VFMO's performance has been on par with benchmarks over 3-5 years, but has outperformed in the short term, despite modest exposure to mega caps.   SusanneB Actively managed funds that base their allocations primarily on the stock price action, known as momentum strategies, have been around for some time, and a few of these funds have delivered strong returns over the past years. Among these funds, one that draws attention is the Vanguard U.S. Momentum Factor ETF (BATS:VFMO). VFMO's allocation is typically well diversified across all market cap categories and shows relatively low valuations, which is a distinct aspect for a momentum fund, given that value is not its primary focus. These factors make this fund particularly attractive in an environment where overall valuations are high, and the stock market starts to reflect a changing macroeconomic scenario, with easing inflation and lower interest rates expected as soon as September. ETF Description & Highlights VFMO is an exchange-traded fund that seeks higher returns compared to the overall U.S. stock market, taking the Russell 3000 index as the primary benchmark. The fund invests in stocks that have shown recent strong performance over different time periods, using a rules-based model to select stocks within an eligible universe, including small, mid and large-capitalization companies. This model also screens stocks across different industries in order to offer diversification while limiting exposure to less liquid stocks. As of March 31, 2024, VFMO has allocations in 591 companies, with an average market cap of $21.7 billion. Of these, only 10.7% of total assets are classified as mega caps, while 29.0% are large caps, 18.6% mid caps, 22.5% small caps and 18.3% micro caps. This somewhat even distribution across different market cap sizes gives VFMO a blended allocation approach that distinguishes the fund relative to the Russell 3000 index, here represented by the iShares Russell 3000 ETF (IWV), where mega caps represent 42% of the index, while small and micro caps combined correspond to only 8%. VFMO's top ten holdings (Meta, NVIDIA, GE Aerospace, Broadcom, Eli Lilly, Arista Networks, Uber, Netflix, AMD, and CrowdStrike) are mostly from the technology sector, which is not surprising for a fund with a momentum approach, given the sector overall great performance in recent months. Additionally, VFMO's top ten holdings represent only 13% of total assets, which is consistent with its diversified investment profile, as opposed to The Russell 3000 index, where the top ten holdings account for 32% of the index, driven by its market cap-weighted composition.   Morningstar, consolidated by the author Below is a comparison between VFMO and a peer group of momentum ETFs. Most of these are relatively concentrated in mega and large caps, particularly SPMO, where nearly 67% are mega caps. On the flip side, some ETFs have allocations that are more diversified across the market cap spectrum, such as PDP and QMOM, similar to VFMO. Interestingly, a characteristic of this group of ETFs is their high turnover ratio, with an average of 110% for the whole group. That compares with VFMO's turnover of 73%, which is below the peer group, although it can still be considered elevated compared to the overall market.   Morningstar, consolidated by the author From a sector allocation perspective, VFMO's largest allocation is to the technology sector, with 27.3% of total equities, followed by industrials with 18.2%, healthcare 16.4%, consumer cyclical 11.7%, financial services 10.4%, communication services 5.6%, energy 4.5%, consumer defensive 3.1%, basic materials 2.4%, and real estate with 0.4%. Relative to the Russell 3000 index, VFMO is overweight in industrials (+9.7%) and healthcare (+4.9%), but underweight primarily in technologies (-5.0%), communication services (-3.2%) and also in most other sectors such as consumer defensive, utilities, financial services, real estate, and utilities.   Morningstar, consolidated by the author Compared to the peer group of momentum ETFs, VFMO is overweight mostly in healthcare and industrials but underweight in technology, as other momentum ETFs have seemingly concentrated on technology companies in an attempt to capture the sector's outperformance.   Morningstar, consolidated by the author From a valuation standpoint, VFMO's multiples are generally lower than those of the Russell 3000 and the S&P 500 indexes. For context, VFMO has a P/E ratio of 20.6x, 5% lower than 21.0x for the Russell 3000 index. The most substantial gap, however, is seen in the price-to-sales ratio, where VFMO's ratio of 1.75x is nearly 30% below the benchmark. These lower multiples are largely expected given VFMO's well-balanced allocation across equities' market caps and its underweight exposure to technology, as larger companies and, particularly, the technology sector typically trade at a premium relative to the rest of the market.   Morningstar, consolidated by the author The same applies to VFMO's relative valuation to other moment ETFs, as their overweight exposure to the technology sector and their stance in high growth and high multiple names led to overall expensive valuations, even compared to the S&P 500 index.   Morningstar, consolidated by the author Strong Peer Group Performance VFMO's performance has been on par with the Russell 3000 index and slightly worse than the S&P 500 index over 3 to 5-year time frames, but has outperformed in the short term. This is a remarkable result for a fund with only modest exposure to mega caps, which have been the winners in the stock market for much of the recent past. On the other hand, while the peer group has performed similarly to VFMO over 3 and 5-year periods, their average performance over the past 12 months has handily surpassed VFMO and the benchmarks, boosted by those with higher allocations to mega-cap stocks: SPMO, FDMO and MTUM, with have gained above 28% during the period.   Morningstar, consolidated by the author While exposure across different market caps is just one component of a fund's overall investment strategy, it is sure to say that VFMO's heavier allocation to smaller capitalization companies has been more challenging compared to funds more focused on large and mega caps. This is particularly important when taking into consideration that VFMO has historically tilted toward mid-cap stocks, as illustrated by the figure below, as opposed to the Russell 3000, a market cap-weighted index.   Morningstar, consolidated by the author  Meanwhile, VFMO's relatively modest valuation is a welcome aspect, as this is not typically expected in funds following momentum strategies. With the stock market now shifting expectations toward a looming easing rate cycle, it may be a great time to diversify and gain greater exposure to interest rate-sensitive sectors outside of mega caps and the technology sector. This is exactly what VFMO can offer investors, alongside its primary focus as a momentum fund to select stocks likely to deliver positive performance going forward","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"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":"4.29.3","shortVersion":"4.29.3","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/2452482298"}