Joe Terranova
Scott Mlyn | CNBC
Joe Terranova plans to stay by the successful quantitative strategy that is allowed his Virtus Terranova U.S. High quality Momentum ETF (JOET) to establish shares like Palantir early earlier than the remainder of the market has piled in during the last 5 years.
The ETF — created by Terranova, chief market strategist for Virtus Funding Companions — has risen 10.9% this 12 months, beating the 6.8% achieve within the Invesco S&P 500 Equal Weight ETF (RSP) in that point.
JOET, RSP YTD chart
To pick the ETF’s holdings, Terranova follows a strict set of rules-based rules. First, he and his workforce display the five hundred largest U.S. firms for shares with the very best constructive momentum, calculated utilizing their complete returns over 12 months. The highest 250 shares are then included within the choice record.
The securities are then graded on three high quality elements — return on fairness, debt-to-equity ratio and annualized gross sales progress fee over the previous three years. The highest 125 shares with the very best composite scores make up the equal-weighted ETF’s holdings.
Though the fund is not actively managed in a conventional sense, it’s rebalanced each quarter. Terranova stated he would not miss the feelings of actively managing a fund, since his rules-based technique has helped him seize alpha that he in any other case may need missed.
“In January of ’24, Palantir certified. Wasn’t within the S&P at this level, as a result of we’re not scanning the S&P,” Terranova stated within the “High quality within the Streets, Momentum within the Sheets” episode of The Compound and Buddies podcast with fellow CNBC contributor Josh Brown. “I’m telling you 100% I’d have offered the inventory if I had discretion six occasions over. I’d have discovered six completely different occasions to promote that inventory, the technique, the self-discipline.”
Terranova estimated that he purchased into Palantir whereas it was buying and selling round $16.76. Shares of the analytics instruments builder traded round $173 on Monday and have soared 129% in 2025.
The investor additionally thanked his strategy for capturing the market’s “character” and serving to him get in early on different themes, like the present healthcare rally. On the flip aspect, Terranova’s technique has additionally helped him promote out of positions that he in any other case may need grown connected to.
“I’ve extra affection in direction of the holdings which were there for a number of quarters,” he advised CNBC on the sidelines of the podcast episode recording. “Tesla’s an excellent instance. Tesla’s income progress flattened out, and I might see what was coming — that we have been going to promote Tesla. And on Halloween, the technique liquidated Tesla, which seems like a reasonably good transfer.”
Going ahead, Terranova intends to construct a set of ETF merchandise that applies his investing guidelines to different belongings outdoors of U.S. large-cap shares, reminiscent of small-caps and European equities. He believes his technique will proceed to achieve permitting him to create a core fairness holding and shock absorber for traders’ portfolios.
“Momentum is a mirrored image of technical confidence. High quality is a mirrored image of basic confidence. And also you need to make investments across the confidence,” Terranova stated to CNBC. “To me, that is the place you get the long-term success.”
The JOET fund has an expense ratio of 0.29% and has round $240 million in belongings below administration.
