SPMO: Buying What Already Went Up Works

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SPMO: Buying What Already Went Up Works

seekingalpha05-14

tmeksSummary Momentum investing is simply buying those stocks that have performed very well in the past 12 months or, as others would say, it is "chasing the market". In some cases, stocks that had a ...

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In some cases, stocks that had a ...</p>\n\n<a href=\"https://seekingalpha.com/article/4693003-spmo-buying-what-already-went-up-works\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>SPMO: Buying What Already Went Up Works</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\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\">\nSPMO: Buying What Already Went Up Works\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-14 18:52 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4693003-spmo-buying-what-already-went-up-works><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>tmeksSummary Momentum investing is simply buying those stocks that have performed very well in the past 12 months or, as others would say, it is \"chasing the market\". In some cases, stocks that had a ...</p>\n\n<a href=\"https://seekingalpha.com/article/4693003-spmo-buying-what-already-went-up-works\">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":"IE00BJJMRZ35.SGD","symbol_name":"JANUS HENDERSON GLOBAL LIFE SCIENCES \"I2\" (SGDHDG) ACC","start_time":0,"source_url":"https://seekingalpha.com/article/4693003-spmo-buying-what-already-went-up-works","article_id":"2435599324","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/183417229/image_183417229.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2435599324","pubTimestamp":1715683939,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"tmeksSummary Momentum investing is simply buying those stocks that have performed very well in the past 12 months or, as others would say, it is \"chasing the market\". 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In some cases, stocks that had a great return last year may see further gains as that price or valuation is driven by fundamentals, as in what occurred with Nvidia (NVDA) or Meta (META) for example. While it's normal to witness one-off events as in the case of General Electric (GE) when it split into 4 companies. I analyzed the Invesco S&P 500® Momentum ETF (NYSEARCA:SPMO), one of the largest focused on this momentum strategy, and it surprised me with its ability to beat the market. Performance The SPMO's momentum strategy seems to work well and has outperformed the S&P 500 since its inception in late 2015. In fact, when I compared several other momentum peers they also performed quite well vs the market, which dispels my belief that this rather simple backward-looking strategy did not work. Apparently, the price drivers in individual stocks seem to last more than a few years. The Invesco S&P MidCap Momentum ETF (XMMO) caught my attention and deserves further analysis. SPMO Performance vs Peers (Created by author with data from Capital IQ)Momentum Index Strategy The SPMO replicates the S&P 500 Momentum Index and builds its portfolio based on the 20% top-performing stocks in the S&P 500 (with volatility adjustments) in the last 12 months. This a concentrated backward-looking strategy based purely on price movement that has an 80% turnover ratio, i.e., the index changes stocks and weights more frequently than the S&P 500. Below, I compared the performance of the current top holdings (80% of AUM) on a YTD 2024 and 2023 calendar basis. It is likely the negative or low performing stocks this year will get reduced or substituted at the following rebalancing and reconstitution points. This may keep the portfolio fresh and incorporating the market's best past performers in the hopes that what drove prices will continue. S&P Global  SPMO Holding Performance (Created by author with data from Capital IQ)Portfolio Overview The SPMO has 100 socks in the portfolio as indicated by the S&P 500 Momentum Index Methodology of selecting the 20% best-performing stocks. However, the ETF is concentrated with the top 26 names making up 80% of AUM and the top 10 over 60%. Using consensus price targets to calculate potential upside to YE24, the portfolio has 10% to gain and as I scan the table, I see 6 stocks where analysts believe upside potential is over 20%. If this holds, then in the next rebalance and reconstitution the ETF should see those stocks increase in weight. While over 10 stocks have under 10% upside and may be replaced. Consensus Price Target (Created by author with data from Capital IQ)Fundamental Drivers Using consensus data for 80% of the AUM, I calculated the portfolio key growth drives such as revenue, net margins, and EPS growth. The ETF's current holdings have over 18% revenue growth estimated for 2024 that then declines to 10% in 2025, which may mean that some stocks with decelerating revenue may be replaced such as Costco (COST), Walmart (WMT), and JPMorgan (JPM). In the proceeding table, I calculated EPS growth for the ETF of 33% in 2024 and 15% in 2025, again a hard deceleration, mostly influenced by NVDA, Meta, and Broadcom (AVGO) according to the consensus. As in the case of revenue, EPS growth is a leading indicator for stock price performance, if growth stalls then the stock price may fall depending on valuations. It seems to me that JPM and Berkshire Hathaway (BRK.B) are likely to be replaced. The YE24-25 growth rate uses a 25% weight for 2024 and 75% for 2025, which I then apply to valuation metrics in the next segment. Consensus Revenue Growth (Created by author with data from Capital IQ)  Consensus EPS Growth (Created by author with data from Capital IQ)Valuation Metrics The current portfolio is trading at 26x PE on YE24 EPS consensus estimates, which backs into a PEG (PE to EPS Growth) ratio of 1.4x that is in line with the S&P 500 and is not expensive in my view. However, within the holdings, several stocks stand out for the relatively low valuation, such as top weight NVDA, Eli Lilly (LLY), and Advanced Micro Devices (AMD) at or under 1x PEG with still strong EPS growth forecast for 2025. Overall, the momentum strategy seems to be a good reflection of underlying growth and valuations.   Consensus Valuation (Created by author with data from Capital IQ)Conclusion  I rate SPMO a BUY. The data and methodology conquered my prejudice about momentum investing. It seems that the strategy does work and is a solid indicator for further outperformance as many companies pass through multiple years of above average growth that the market rewards with higher valuations. The ETF is also able to then switch out of stocks that fail to beat the market, which is a slower process in the traditional S&P 500 index method.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":0},"commentList":[],"hasMoreComments":false,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}