The $8.7 billion exchange-traded fund that lets investors bet that the stock market’s winners will keep on winning has made a massive pivot back to technology shares -– the sector that’s caught in the crosshairs of a US-China trade war.
The iShares Edge MSCI USA Momentum Factor ETF (ticker MTUM) tech weighting went to 40 per cent from 18 per cent, while another globally-geared sector —- industrials — saw material additions, going to 10 per cent from 3 per cent. The fund cut its exposure to health-care stocks to 12 per cent from 31 per cent and trimmed its holdings in consumer staples, another safety-first segment, to 8 per cent from 13 per cent.
A net 13 tech stocks were added, while 13 health-care stocks were removed, according to Bloomberg Intelligence ETF analyst Athanasios Psarofagis. The likes of Johnson & Johnson, Pfizer Inc. and WalMart Inc.; were among the most-notable names expunged from the fund, while new members include Nasdaq 100 constituents Broadcom Inc. and Mondelez International Inc.
“Oh man, MTUM just rebalanced and is now back to being a tech-heavy fund, just as tech sells off after a rally which MTUM missed due to an ad hoc rebalance, which had it looking like a low-vol fund,’’ said Eric Balchunas, senior ETF analyst for Bloomberg Intelligence.
Indeed, the correlation between MTUM and a low-volatility iShares ETF has stayed unusually high for all of 2019, Psarofagis observed.
The fund’s previous ad hoc rebalance in January more than halved its exposure to technology and communications sectors, the latter of which is home to three of four FANG stocks — none of which are held by MTUM. Health care was the big beneficiary of the shuffle.
The January rebalance proved to be a hindrance to MTUM’s returns for much of the year.