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MMTM: A Small Fund in a Large Package

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Alternative weighting methodology

The SPDR S&P 1500 Momentum Tilt ETF (MMTM) seeks to track the investment results of the S&P 1500 Positive Momentum Tilt Index. By applying an alternative weighting methodology, the index selects stock from the S&P Composite 1500 Index—an aggregate index. The S&P Composite 1500 Index is a capitalization-weighted combination of the large-cap S&P 500 Index, the S&P MidCap 400 Index, and the S&P SmallCap 600 Index. MMTM’s index chooses from 1,500 stocks on the basis of momentum.

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Creating sub-portfolios

The strategy of the index is to create 20 sub-portfolios of equal market capital from the composite index based on momentum. Then, the index allocates a major part of its resources to the portfolio with the highest momentum.

MMTM invests primarily around 80% of its net assets in the components of its index—the S&P 1500 Positive Momentum Tilt. Currently, it manages $18.14 million that’s mainly diversified in the IT (information technology) and healthcare sectors. Its top five holdings include Apple (AAPL), Amazon.com (AMZN), JPMorgan Chase (JPM), Walt Disney (DIS), and Pfizer (PFE). The top five holdings represent almost 12% of MMTM. It has given a return of 2.60% to its investors since January 2015. In contrast, its annual return is 7.47%.

Conclusion

In momentum investment strategy, whether it’s used in conjunction with quant strategies, hedge-fund strategies, or traditional investment strategies it has given nice returns. Understanding these funds is very important for investors who are willing to invest in them. Using the momentum approach for investing is nothing but risk minimization steps taken by the fund managers to generate a high return by taking less risk.

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