The momentum factor is on track to end April as it began: the strongest year-to-date performer among US equity factors, based on a set of ETFs through Friday’s close (Apr. 26).
In line with the broad market, iShares MSCI USA Momentum Factor ETF (NYSE:MTUM) has taken a hit in recent weeks after touching a record high earlier in the year. In relative terms, however, MTUM’s factor-leading performance in 2024 is intact, courtesy of a 14.6% year-to-date gain.
MTUM’s rally this year is twice the gain for the broad market via S&P 500 (NYSE:SPY). MTUM is also comfortably ahead of its nearest would-be factor leaders in 2024: large-cap growth (IVW) and mid-cap growth (IJK), which are tied for second place with 10% returns each so far this year.
Meanwhile, the red-ink brigade for equity factors admitted new members for year-to-date results since our Apr. 10 update: small-cap value (IJJ) and small-cap core (IJR). Joining small-cap value (IJS), it’s now a clean sweep of losses in 2024 for the small-stock category.
The weakness in low-capitalization stocks is disappointing for investors in this corner, but for contrarians, the valuations look compelling. Morningstar reports:
“Small-cap stocks trade at an 18% discount to fair value, making them the cheapest US asset class across the Morningstar Style Box (NYSE:BOX),” according to analysis by the firm’s senior US market strategist Dave Sekera.
The question is whether an attractive valuation will soon lead to strong performance. The long-running underperformance of small-cap shares suggests caution (still), but hope springs eternal in this slice of the factor realm.
In an interview published yesterday by TheStreet.com, Ward Sexton, a manager of the William Blair Small-Cap Growth Fund (WBSNX), an actively managed open-end fund, says:
“There are a lot of opportunities to find misunderstood or lesser-known names that will grow to become large-caps.”
Music to the ears of small-cap investors. So far this year, however, this corner of the market is still singing off-key.