FDMO: A Sophisticated, But Not Better Momentum ETF

The article, “FDMO: A Sophisticated, But Not Better Momentum ETF,” provides an analysis of the Fidelity Momentum Factor ETF (FDMO). This ETF follows a sector-neutral strategy based on price performance, earnings surprise, and short interest. The article highlights that FDMO is overweight in technology and large companies. Despite its sophisticated methodology, FDMO’s track record has been disappointing compared to other momentum ETFs with simpler approaches. The article examines FDMO’s portfolio holdings, performance, and compares it to other similar ETFs in the market. Overall, the article offers a comprehensive evaluation of FDMO and its potential as an investment option.

Introduction

This article provides a comprehensive overview and analysis of the Fidelity Momentum Factor ETF (FDMO). It explores the strategy employed by FDMO and evaluates its performance and comparison to competitors. The article also discusses the risks and considerations associated with investing in FDMO. Ultimately, readers will gain a comprehensive understanding of FDMO and be able to make informed investment decisions.

FDMO Overview

The Fidelity Momentum Factor ETF (FDMO) is an exchange-traded fund that aims to provide investors with exposure to high-momentum stocks within the U.S. market. FDMO implements a sector-neutral strategy, taking into account factors such as price performance, earnings surprise, and short interest. The fund tracks the Fidelity U.S. Momentum Factor Index and consists of 128 holdings.

FDMO Strategy

FDMO’s strategy is to select stocks with high momentum characteristics from the largest 1000 U.S. stocks based on market capitalization. The selection process evaluates four factors, each weighted differently, to calculate the momentum score: 12-month Return Minus 1-month Return (35%), Volatility-adjusted 12-month Return Minus 1-month Return (35%), 12-month Earnings Surprise (15%), and 12-month Average Short Interest (15%).

FDMO Portfolio

The FDMO portfolio is predominantly invested in large and mega-cap companies, comprising approximately 72% of the total asset value. The technology sector represents the highest weighting in the portfolio at 28.3%. Due to the sector-neutral methodology, the sector breakdown closely resembles that of the benchmark, which is the S&P 500 Index. The top 10 holdings in the FDMO portfolio account for 35.9% of its total asset value.

Performance and Comparison

Performance

Since its inception on September 12, 2016, FDMO has delivered a disappointing track record compared to other momentum ETFs. While the fund has lagged behind the S&P 500 Index by an annualized return of 88 basis points since October 1, 2016, it has outperformed the benchmark over the past 12 months by 6%.

FDMO vs. Competitors

When compared to other large-cap momentum ETFs such as the Invesco S&P 500 Momentum ETF (SPMO), the iShares MSCI USA Momentum Factor ETF (MTUM), and the JPMorgan U.S. Momentum Factor ETF (JMOM), FDMO falls behind in terms of assets under management and liquidity. The performance of FDMO is also comparably lower than its competitors, with SPMO consistently outperforming the fund since its inception.

Risks and Considerations

Investing in FDMO, like any investment, comes with certain risks and considerations. One risk is the concentration of the portfolio in technology stocks and large companies, which can lead to a lack of diversification. Additionally, the fund’s performance has been disappointing compared to other momentum ETFs, indicating potential inefficiencies in its strategy. Investors should also carefully consider the expense ratio and turnover rate of the fund.

Conclusion

In conclusion, the Fidelity Momentum Factor ETF (FDMO) employs a sector-neutral strategy based on price performance, earnings surprise, and short interest. However, despite its sophisticated methodology, FDMO has underperformed its competitors and the benchmark, the S&P 500 Index. Investors should consider the risks and considerations associated with FDMO before making investment decisions.

Takeaway

The key takeaway from this article is that while FDMO offers exposure to high-momentum stocks in the U.S. market, its performance has been disappointing compared to other momentum ETFs. Investors should carefully evaluate the risks and considerations before investing in FDMO and consider alternative options that may offer better returns.

About the Author

This article was written by Fred Piard, a quantitative analyst and IT professional with over 30 years of experience in technology. Fred has been investing in data-driven systematic strategies since 2010 and runs the investing group Quantitative Risk & Value. He shares a portfolio invested in quality dividend stocks and companies at the forefront of tech innovation.

Disclosure

The author of this article has a beneficial long position in the shares of Amazon, Google, and Meta. The opinions expressed in this article are the author’s own and do not constitute investment advice. The author has no business relationship with any company mentioned in the article and is not receiving compensation for writing it.

Legal Disclaimer

The information provided in this article is for informational purposes only and does not constitute financial or investment advice. Investing in ETFs and other securities involves risk, and individuals should consult with a financial professional before making any investment decisions.