Norman Simpson
Momentum ETFs track a strategy built on a simple, counterintuitive idea: buy assets that are already rising and sell them once the trend fades, rather than hunting for bargains and waiting for the market to notice. Funds like iShares MSCI USA Momentum Factor ETF (MTUM) and Invesco DWA Momentum ETF (PDP) package that approach into a single ticker, and their recent performance next to the SPDR S&P 500 ETF Trust (SPY) is drawing fresh attention from investors weighing whether chasing strength still pays off.
What Momentum Investing Actually Means
The strategy traces back to investor Richard Driehaus, who built his career on the belief that buying high and selling higher could outperform hunting for undervalued companies. Driehaus started as a research analyst at A.G. Becker in 1968, broke from the value investing playbook associated with Benjamin Graham and Warren Buffett, and in 1982 founded Driehaus Capital Management to run money on exactly that thesis: chase stocks with accelerating earnings, rising volume, and climbing prices.
The mechanics are straightforward in theory. A momentum trader takes a position in a security that is already moving up, rides the trend, and exits before it reverses. Think of it as surfing: catch the wave, ride it, and paddle off before it collapses. The tricky part is timing, because most traders spot the wave late and then hesitate to jump off before it crashes.
Building a Momentum Position: Liquidity, Entry, and Exit
Five elements tend to separate a disciplined momentum approach from a reckless one: picking liquid securities, managing risk on both ends of a trade, entering early, choosing a sensible holding period, and timing the exit. Traders are generally steered toward individual stocks with average daily volume above 5 million shares, and away from leveraged or inverse ETFs, whose price behavior can diverge from the underlying index or futures market they are meant to track.
Biotech names and small to midsize technology companies often become the
James Chavez