A $15 Billion Quant ETF Hit by Rebalancing Soars With Momentum

(Bloomberg) -- BlackRock Inc.’s trend-chasing ETF is back at record highs as it rides the bounce in cyclical stocks, in a reprieve for investors hit by the ill-timed rebalancing of the quant fund earlier this year.

The $15 billion iShares MSCI USA Momentum Factor exchange-traded fund (ticker MTUM) is making a comeback alongside the popular investing style, which buys recent top performers in a bet they’ll keep winning.

As the percentage of the population that has been vaccinated grows and the economy gathers steam, momentum is rising. A Bloomberg gauge tracking a version of the strategy has returned 1.7% in the past month -- the most among 10 popular factors.

“After pulling back, we are seeing improved comparative price trends for some of the cyclical sectors, most notably financials,” Keith Lerner, chief market strategist at Truist Wealth in Atlanta, wrote in a note on Wednesday.

MTUM is a so-called smart-beta product, a $1.4 trillion breed of fund that use quant strategies in ETF wrappers.

The fund had a lackluster first-half of the year after being slow to switch into more economically sensitive shares that were benefiting from bets on a rebound from the pandemic. By the time it had caught up to the rotation, those cheap and small stocks were declining again.

Read more: Quant ETF Loses Out in Badly-Timed Rebalance

MTUM reshuffled almost 70% of its portfolio in May, dropping big tech growth shares and boosting its exposure to financial stocks. The timing of the huge rebalancing was determined by its index, which tracks the market’s top performers of the past six and 12 months.

While the fund’s performance has improved, investors aren’t taking much notice. There have been virtually no major flows in either direction from the product in weeks, data compiled by Bloomberg show.

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