First Trust has launched a new ETF in Europe that strives to capitalize on the momentum factor within US large-cap equities while incorporating a risk-management overlay to guard against market exuberance.
Gregg Guerin, Senior Product Specialist at First Trust Global Portfolios.
The First Trust US Momentum UCITS ETF has been listed on London Stock Exchange in US dollars (FTMO LN) and pound sterling (USMO LN), as well as on Deutsche Börse Xetra in euros (FTGM GY).
While FTMO primarily targets stocks with robust recent upward price trends, it also incorporates valuation checks to account for instances where prices may have risen too rapidly.
Gregg Guerin, Senior Product Specialist at First Trust Global Portfolios, commented: “We are delighted to partner with iNDEX Research to offer investors a sophisticated tool to potentially benefit from market trends. By combining strong price momentum with valuation considerations, we’re proud to introduce a product that aims to capture upside potential while managing the risks typically associated with pure momentum strategies.”
Methodology
The fund is linked to the iNDEX US Momentum Index which selects its constituents from a universe of US-traded stocks, including American Depository Receipts, that have a minimum market capitalization of $2 billion and an average daily trading volume of at least $1 million.
Eligible companies are screened to exclude those in the top decile for the price-to-sales ratio, debt-to-balance sheet ratio, and daily return volatility over the past year.
The remaining companies are ranked based on a momentum factor calculation that considers a stock’s share price relative to its 8-month average, as well as its 50-day average relative to its 200-day average.
The top 180 companies are selected, ensuring no more than 40 companies are represented per GICS sector. Constituents are weighted by market capitalization, adjusted for various risk factors, subject to a maximum weight of 3% per stock.
The index is rebalanced each quarter to ensure the portfolio stays aligned with market trends and the underlying momentum strategy.