ETF Talk: A Passport to Momentum

“In investing, what is comfortable is rarely profitable.”

— Rob Arnott, founder and chairman of the board of Research Affiliates

Comfort in markets often takes the form of familiarity — domestic exposure, recognizable names, established trends. Yet the biggest long-term returns are often driven not by familiarity, but by identifying and pursuing persistent strength patterns wherever they appear.

Investors willing to step into the unfamiliar may want to look at this week’s ETF, the iShares MSCI International Momentum Factor ETF (IMTM). This fund blends momentum factor investing with international investing to present a bold strategy for investors ready to look beyond their home turf.

IMTM seeks to track an index that focuses on large- and mid-cap stocks outside of the United States that exhibit relatively high price momentum. Its holdings are weighted by both market capitalization and momentum score, allowing the strongest-performing stocks to take the lead while maintaining diversified exposure across developed international markets.

Similar to its U.S.-focused counterpart, the iShares MSCI USA Momentum Factor ETF (MTUM), IMTM follows a disciplined, rules-based momentum methodology, but it extends that approach past domestic borders. This global lens allows investors to participate in leadership cycles that may emerge outside the United States, expanding the opportunity set beyond familiar terrains.

This fund has a heavy focus on Financial Services and Industrials within its portfolio. Its top 10 holdings constitute 20.42% of its total assets and include HSBC Holdings plc (HSBA.L), 2.64%; Banco Santander, S.A. (SAN.MC), 2.58%; ASML Holding N.V. (ASML.AS), 2.55%; Rolls-Royce Holdings plc (RR.L), 2.17%; Siemens Energy AG (ENR.DE), 2.06%; Rheinmetall AG (RHM.DE), 1.92%; Royal Bank of Canada (NYSE: RY), 1.80%; Banco Bilbao Vizcaya Argentaria, S.A. (BBVA.MC), 1.75%; Iberdrola, S.A. (IBE.MC), 1.55% and The Toronto-Dominion Bank (NYSE: TD), 1.40%.

IMTM has net assets of $3.73 billion and a low expense ratio of just 0.30%. It also has delivered strong recent returns, rising 5.84% over the last month, 12.91% in the last three months and 39.00% for the last year.

Chart courtesy of www.StockCharts.com.

The chart above illustrates the results of seeking momentum beyond familiar borders, which, for the last year, produced a steady upward climb. By focusing on recent winners abroad, the fund has benefited from trends that may not have been captured within U.S.-focused portfolios.

It is important to note, however, that momentum-based strategies can experience sharper swings than broad market index funds. Leadership cycles shift, and when trends reverse, gains can give way to periods of underperformance. International exposure also introduces additional considerations, including currency fluctuations and differing economic conditions across regions.

For those prepared to embrace that variability, the fund may offer meaningful diversification and growth potential. It may be especially appealing to investors looking to expand their sources of return beyond traditional domestic exposures.

As with any investment, decisions should be made with careful consideration and should reflect individual financial objectives and overall portfolio strategy. Investors should always do their due diligence and research any stock, fund or ETF before adding it to their portfolios.

Of course, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.