An Actively Balanced Momentum Fund

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

The Principal Sustainable Momentum Index ETF (PMOM) tracks an index of large- and mid-cap U.S. equities that exhibit sustainable price momentum.

PMOM’s index is built around a quantitative model co-developed by Nasdaq and Principal Global Investors. PMOM screens securities using a quantitative model, assigning a sustainable momentum (SUMO) score to each. SUMO scores are evaluated based on several factors, and are based on historical stock price over multiple periods and taking multiple market environments into consideration. Those securities with a score in the top 15% of the pool are added to PMOM’s holdings.

Despite being a passively managed fund, PMOM rebalances its holdings monthly during periods of high market volatility. If an individual stock’s score falls from the top 35% during any time of the year, it is removed from the fund’s holdings. The fund invests at least 80% of its net assets, currently around $6 million, in its holdings at any given time.

Although the fund holds both growth and value stocks and has good diversification spread over 138 holdings, it exhibits a clear bias towards large-cap growth equities. Technology stocks make up for nearly one-thirds of the fund’s total holdings.

PMOM has an expense ratio of 0.29% and has low liquidity (average daily volume is only $4520), which means it could be for investors to trade the stock at times. Year to date, the fund has returned 9.64%. PMOM has a distribution yield of 0.55% and its last dividend paid was $0.039.

Chart courtesy of Nasdaq.com

PMOM’s top holdings are Sarepta Therapeutics (SRPT), 1.33%; Square Inc. (SQ), 1.17%, HollyFrontier (HFC), 1.11%; Fortinet (FTNT), 1.10%; and Aspen Technology (AZPN), 1.05%.

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Of the fund’s holdings, 35% are in cyclical sectors such as financial services and consumer cyclical, 30% are in technology, 17% are in industrials and 14% are in more defensive sectors such as health care.

Investors interested in capturing price momentum in a robust U.S. stock market can do their due diligence on Principal Sustainable Momentum Index ETF (PMOM).

 

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