What is the QMOM ETF ?
QMOM ETF: Overview
The QMOM ETF, also known as the "Alpha Architect U.S. Quantitative Momentum ETF," is an actively managed exchange-traded fund that aims to achieve capital appreciation by investing in U.S. equity securities with high relative momentum. The fund is managed by Empowered Funds, LLC, operating under the name EA Advisers, and utilizes a proprietary methodology developed by Empirical Finance, LLC, known as Alpha Architect. The fund's investment strategy revolves around the concept of momentum investing, which emphasizes selecting securities that have demonstrated strong recent total return performance compared to their peers.
QMOM ETF: Underlying and Exposure - What Does it Track and How?
The QMOM ETF analyzes an initial universe of liquid stocks that primarily trade on U.S. exchanges. To ensure liquidity, the smallest-capitalization stocks in this universe generally have a market capitalization above $1 billion. The fund excludes illiquid securities, real estate investment trusts, exchange-traded funds (ETFs), American Depositary Receipts, and companies with less than twelve months of available financial data.
The fund then applies proprietary screens to further refine the universe of eligible companies. It eliminates companies with certain issues that may negatively impact their momentum, such as lower past six-month and nine-month momentum and higher beta. After this screening process, the fund selects approximately 50 to 100 momentum stocks that have demonstrated the highest cumulative returns for the past 12 months (excluding the most recent month). Additionally, the fund applies momentum quality screens to identify companies with consistent positive returns during the measured period.
As of September 30, 2022, the QMOM ETF had significant exposures to the Energy sector (46.6%) and the Healthcare sector (16.7%). The fund may periodically reallocate its portfolio, with a minimum frequency of at least quarterly, to adjust to changes in the market conditions and maintain its momentum-based strategy.
QMOM overlap What is the QMOM ETF ?
QMOM ETF: Benefits of Investing in this ETF
Investing in the QMOM ETF offers several potential benefits for investors. The active management approach aims to capitalize on the momentum factor, which has historically shown to be a relevant factor in equity market performance. By focusing on companies with strong recent performance, the fund seeks to capture the market's upward trends, potentially leading to enhanced returns.
Furthermore, the fund's diversified portfolio of U.S. equity securities across different market capitalizations may help reduce the overall risk compared to investing in individual stocks. Diversification allows investors to spread their exposure, mitigating the impact of adverse events in any single company or sector.
Another advantage of the QMOM ETF is the liquidity and accessibility provided by the ETF structure. Being traded on stock exchanges, investors can easily buy or sell shares throughout the trading day at market prices, making it a convenient investment option.
QMOM ETF: Considerations Before Investing
While the QMOM ETF offers compelling features, potential investors must carefully consider certain factors before making their investment decisions. As an actively managed fund, it comes with management fees and expenses, which can impact the overall returns. Therefore, investors should assess these costs against the potential benefits of the fund's performance.
Moreover, momentum-based strategies may not always outperform the broader market or other investment approaches. Like any investment, the QMOM ETF is subject to market risks and fluctuations, and past performance is not a guarantee of future results. Investors should evaluate their risk tolerance and investment objectives before allocating their funds to this ETF.
Conclusion:
In conclusion, the QMOM ETF presents an actively managed approach to capitalize on the momentum factor in U.S. equity securities. Its investment strategy focuses on selecting companies with strong recent performance to potentially achieve capital appreciation. However, investors should conduct thorough research and consider their risk tolerance before investing in this ETF. As with any financial investment, seeking advice from a qualified financial advisor is essential to make informed decisions that align with individual financial goals and circumstances.
Disclaimer: This article is for informational purposes only and does not provide any investment advisory services. Investors should conduct their due diligence and consult with a qualified financial advisor before making any investment decisions. The information presented here is based on sources available up to September 2022.
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FAQ
What is the QMOM ETF?
The QMOM ETF, also known as the Quantitative Momentum ETF, is an actively-managed exchange-traded fund that aims to replicate the performance of long/short equity hedge fund strategies using a proprietary quantitative model called the Dynamic Beta Engine.
How does the QMOM ETF invest its assets?
The QMOM ETF invests its assets by employing a long/short equity hedge strategy through exchange-traded futures contracts across various asset classes, including equities, fixed income, and currencies.
What is the role of the Dynamic Beta Engine in the QMOM ETF?
The Dynamic Beta Engine is a proprietary quantitative model used by the Sub-Advisor to identify the main drivers of performance of a diversified pool of the largest long/short equity hedge funds (Equity Hedge funds). The model estimates the current asset allocation of these hedge funds and guides the QMOM ETF's portfolio allocation in U.S. exchange-traded futures contracts.
How does the QMOM ETF replicate hedge fund strategies?
The QMOM ETF aims to replicate Equity Hedge funds' strategies by taking long and short positions in U.S. exchange-traded futures contracts that closely reflect the estimated current exposures of these hedge funds across various asset classes.
What is the volatility target of the QMOM ETF?
Under normal market conditions, the Sub-Advisor seeks to achieve a volatility level of 8-10% on an annual basis. This refers to the approximate maximum amount of expected gains or losses during a given year expressed as a percentage of value.