A few years ago, meme stocks took over the stock market, amassing significant gains. Since then, there's been more interest in what's hot and what the next big stock is. One exchange-traded fund (ETF) that focuses on momentum-based trading is the iShares MSCI USA Momentum Factor ETF (CBOE: MTUM). It focuses on U.S. stocks which are "exhibiting relatively higher price momentum."
This isn't the same as a meme-type investment, as it can reflect a stock that's simply getting hot. However, the idea is similar – jump on the bandwagon and load up on a stock that's been popular of late.
A great example is Nvidia (NASDAQ:NVDA), which hit a $1 trillion valuation earlier this year as its role in artificial intelligence (AI) has made it one of the most popular stocks to own this year. And at 6.6%, it is the largest holding in this fund right now. Another stock that has been hot is Meta Platforms (NASDAQ:META), and it owns the second spot in the ETF with a weight of 5.5%. Rounding out the third spot is Microsoft (NASDAQ:MSFT), which has also been benefiting from the excitement in AI as it has invested billions in ChatGPT owner OpenAI.
Shares of Nvidia and Meta have more than doubled this year while Microsoft is up by a more modest 32% thus far. But they have all been great buys and have outperformed the S&P 500, which is up by just 14%.
If you want to ride the wave and jump on hot stocks, then the Momentum Factor ETF could be the fund for you. The danger, however, is that it can also be full of stocks that have risen too quickly and which could be due for corrections.
