mtum momentum etf ... how does it work?

[stockmarketbeginner]

Hello,

This etf looks interesting:
https://www.ishares.com/us/products/251614/ishares-msci-usa-momentum-factor-etf

I'm used to ETFs that keep their holdings very steady (Like the S&P 500). This one seems to have some sort of computation going on that identifies momentum stocks and then places them in/out of the portfolio.

If we are a shareholder of the ETF, do we constantly get hit with capital gains taxes? If the underlying portfolio churns a lot, I'm guessing any profits on the securities exiting the ETF get assigned to us as tax. But I'm not sure.

I'm curious if anyone has an idea of how a factor ETF like this goes about selecting/updating its stocks, and what the tax effects are on the shareholder.

 

[DaveV]

I'm used to ETFs that keep their holdings very steady (Like the S&P 500). This one seems to have some sort of computation going on that identifies momentum stocks and then places them in/out of the portfolio.

...

If we are a shareholder of the ETF, do we constantly get hit with capital gains taxes? If the underlying portfolio churns a lot, I'm guessing any profits on the securities exiting the ETF get assigned to us as tax.

MTUM would be classified as an Active ETF, i.e. one that rebalances its holdings every 3 to 6 months, based on some criteria. In MTUM's case that criteria would be stocks with high momentum. MTUM is currently heavily weighted towards Tech and Financial stocks.

As for taxes, MTUM's tax consequences are no different than any other ETF. Tax-wise, owning an ETF is exactly like owning a stock. You only have to worry about taxes when you sell (or buy to close a short), or when you receive dividends. Note that for ETNs (Exchange Traded Notes), tax consequences are different. For ETNs you would receive a K1 tax form detailing your capital gains consequences that you would have to file with your IRS 1040 form. Many of the pipeline MLP (Master Limited Partnerships), and many of the REIT as ETNs.