Momentum ETFs: the friendly trend

Added 13th September 2017

August was a hot month for momentum ETFs. The equity funds which track shares doing well in the stock market saw record inflows of $300m (€250m) from European investors, Blackrock reported.

Momentum ETFs: the friendly trend

Global equity momentum ETFs were responsible for the bulk of the inflows last month, and the rush into the category follows a period of record-low volatility. 

When volatility is low, markets are calm and there’s a low chance of sudden trend breaches.

Hence the record interest in momentum ETFs, which normally see net monthly inflows below $100m. And following this trend has been a winning strategy in 2017: the iShares MSCI World Momentum Factor ETF has returned 20% year-to-date.

 et flows into uropedomiciled factor s Net flows into Europe-domiciled factor ETFs

European financial sector outperformance is one of the trends of 2017. Consequently, the sector has seen strong interest recently: August was the sixth inflow month in a row for European financials ETFs. Moreover, the last six months have been the largest ever in terms of inflows for these funds.

The recent experience of financial sector ETFs may serve as a stark warning to those investing in momentum ETFs: even when volatility is relatively low, trends can change suddenly. After recording gains of 30% in the previous 8 months, the MSCI Europe/Banks ETF has fallen 6.5% since early August.

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About Author

Tjibbe Hoekstra

Senior Reporter

Tjibbe joined Expert Investor as a senior reporter in March 2014. Before moving to London he worked as a financial news reporter for various news outlets in Amsterdam, including Reuters and ANP, the main news agency in the Netherlands. He also worked for Fondsnieuws, a website and magazine for finance professionals in the Netherlands. Tjibbe holds a MSc in Public Administration and a post-graduate diploma in Journalism.

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