New ETFs On The Block: PowerShares S&P 500 Momentum Portfolio (SPMO)

Financial DataFactor-based investing has been quite popular within the investment community and, at a time when valuations seem a little stretched, momentum factor based strategies managed to find increasing favor with investors.

PowerShares, the fourth-largest US issuer of exchange-traded funds and one of the biggest purveyors of factor-based investment, recently added a momentum factor based ETF to their lineup after the firm’s fairly successful previous products such as the PowerShares DWA Tactical Sector Rotation Portfolio (DWTR) and the PowerShares S&P 500 Low Volatility Portfolio (SPLV).

The newly minted PowerShares S&P 500 Momentum Portfolio (SPMO) tracks the performance of the S&P 500 Momentum Index and generally invests at least 90 percent of its total assets in stocks that are constituents of the index. The index consists of 101 stocks that have the highest momentum score from the broader S&P 500 universe.

To calculate the momentum score, each security in the S&P 500 index is evaluated for price changes over the past 12 months, excluding the most recent month. Subsequently, an adjustment is applied based on the security’s volatility over the same period, which helps in rewarding stocks with a smoother trend in price increases.

Also, technical indicators such as moving price averages and stability of price directions are also considered for evaluating sustainable stock price appreciation. Weights to securities are then assigned according to the product of their market cap and momentum score.

Consumer discretionary and healthcare sectors combine for over 60 percent of SPMO’s total weight, giving it the looks of a momentum ETF. However, despite the ETF’s 27.3 percent healthcare exposure, the portfolio contains just three bio-tech stocks. The underlying index and the portfolio are reconstituted and re-balanced twice a year on the third Friday’s of September and March.

Investment style-wise, large-cap “growth” companies contribute nearly two-thirds of the total portfolio (64.82 percent), followed by large-cap “blend” firms (18.68 percent) and large-cap “value” stocks (8.74 percent). The top five holdings include Amazon Inc (6.38 percent), Walt Disney Co (4.75 percent), Home Depot Inc (4.53 percent), Pfizer Inc (4.49 percent) and CVS Health Corp (3.75 percent).

SPMO charges 0.25 percent annually.

Disclosure: No holdings

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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