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ERROR: type should be string, got "https://www.barrons.com/articles/momentum-etfs-show-surprising-staying-power-1525457380\nMomentum ETFs Show Surprising Staying Power\nDaren Fonda\nMay 4, 2018 2:09 pm ET\nA chart of the stock market this year reveals a downward slope with lots of peaks and valleys. But some momentum exchange-traded funds appear to be skiing uphill. The iShares Edge USA Momentum Factor ETF—the largest, with $7.8 billion in assets—has returned 3.4% this year, pushing it well ahead of the -1.1% return for the Standard & Poor’s 500 index.\nLike other momentum ETFs, the iShares Edge USA Momentum Factor (ticker: MTUM) holds a basket of yesterday’s winning stocks. The fund owns the best-performing large- and mid-cap stocks of the past six- and 12-month periods. It rebalances every November and May, sticking with the 125 or so stocks that gained the most. The ETF returned 37.5% last year, compared with 21.8% for the S&P 500.\nNot surprisingly, the fund gets its lift from technology and financial stocks. Along with the consumer discretionary category, which includes Amazon.com (AMZN), these stocks account for more than two-thirds of assets. The ETF has also sprinted ahead because of what it doesn’t own: It keeps hardly anything in consumer staples, materials and real estate, all of which have been weak.\nThe fund’s small exposure to energy stocks (2% of assets) could be a constraint: Energy beat the S&P 500 through April and is still going strong. But market momentum trends aren’t radically shifting, says Justin Sibears, managing director at ETF investment firm Newfound Research. “We’ve seeing small changes in one sector doing well,” he says, “but the magnitude isn’t large enough to impact momentum strategies in a big way.”\nInvestors shouldn’t dabble in momentum unless they have a high tolerance for pain. Gains can be wiped out with an abrupt market reversal or rapid shift in sentiment from one sector to another.\nMoreover, while momentum funds may outperform heading into a bear market—by avoiding the weakest stocks—they’re likely to miss the recovery by a long shot. That was the case in 2009, when the worst performers in the downturn (mainly financials) staged a huge rally, surging 163% from March to May 2009. The market’s prior 12-month winners, meanwhile, gained only 8%, according to a study in the Journal of Financial Economics.\nEven if this bull market is winding down, momentum stocks may hold up well. Momentum has been the best performing “factor” in the later stages of bull markets, according to Bank of America Merrill Lynch. And momentum tends to be the most consistent winner in the mid-to-late stages of an economic expansion (the current one is now the third-longest in history).\nMomentum stocks also have a built-in edge that may keep them running like perpetual-motion machines: Rising share prices tend to translate into competitive advantages—companies can use their higher stock price as a source of cheap capital for acquisitions, for instance. The market doesn’t fully appreciate this “second-degree” benefit, says Wesley Gray, head of ETF firm Alpha Architect. But it can help firms fend off rivals, grow faster and beat analysts’ estimates—perpetuating stock momentum.\nA case in point: Amazon. The company is so highly valued that it can make major acquisitions without denting its balance sheet or market value. After Amazon bought Whole Foods for $13.7 billion, the stock gained so much that Amazon had a “net negative acquisition cost,” says Gray. “That is a pretty insane competitive advantage.”\nAmazon won’t soar forever. But stocks in perpetual motion are likely to stay that way, at least until something big gets in their way.\nEmail: editors@barrons.com\nRising Stocks Could Keep Rising"