Momentum ETFs can be a great opportunity for investors seeking to take advantage of market trends and invest in companies that are gaining strength. Whether you're looking to enhance returns or add some diversification to your portfolio, momentum ETF investing offers a disciplined, data-driven approach.
What is momentum investing and why it matters: Build a portfolio that moves with the market
Investors don’t always react right away when a company’s outlook improves, but once a stock starts climbing, they tend to notice and want to jump in on the action. This behaviour drives stock prices higher, and that is how momentum investing works.
Momentum investing is a popular strategy based on the simple idea that stocks that have been doing well lately often perform well in the near future. Over time, research shows that investing in momentum ETFs can lead to positive risk-adjusted returns.
How to measure momentum
The momentum factor focuses on finding companies that are on a winning streak. These are businesses with strong financial performance, rising stock prices and growing attention from investors. A common way to measure momentum is by looking at a stock’s 12-month price return. This helps find companies that are gaining popularity and that might continue to outperform. The momentum factor looks for companies with:
Why invest in Canadian momentum ETFs?
- Positive market outlook: Stocks with strong recent trends have historically delivered better returns than those with weaker momentum.
- Underreaction advantage: Markets often underreact to improving fundamentals, allowing momentum strategies to take advantage of continued upward movement.
- Behavioural edge: Momentum investing benefits from the way investors process information, often slowly or with bias, creating opportunities for trend-based gains.
What is Fidelity’s approach to momentum factor investing?
Fidelity’s momentum factor ETFs aim to track the performance of tailor-made indexes that are actively designed and reflect the performance of stocks with positive momentum signals, and rebalanced quarterly to reevaluate price momentum. These funds aim to offer:
- single-factor exposure to companies that show positive momentum signals
- an outcome-oriented strategy that follows market trends and sentiment, and that has the potential to outperform over the long term
- an efficient complement to a well-diversified portfolio
The Fidelity Canada Momentum Factor Index is designed to capture these advantages, helping investors tap into the potential of trend-driven investing.
The key takeaways if you’re considering momentum ETFs
