SMART Trend 25 ETF (STRN)

The SMART Trend 25 ETF (STRN) is a trend-following fund that filters the largest US companies through a price-momentum screen, selecting only those showing sustained upward price movement, then rebalances quarterly — blending the simplicity of an index approach with the selectivity of a tactical signal.

How the strategy works

STRN holds exactly 25 stocks — selected from the largest (most liquid) US companies by market capitalization — but only if those stocks are showing upward momentum. The fund starts with a broad universe of mega-cap and large-cap equities, applies a quantitative momentum filter (typically measuring recent price strength over a lookback period), and picks the strongest movers. This rules-based process repeats quarterly, which means the portfolio turns over as momentum shifts — some winners drop out when their trends fade, and new candidates enter as they accelerate.

The appeal is dual. First, the approach is transparent and mechanical: there is no human portfolio manager trying to time trends or pick which direction markets will move next. The signal is historical price movement, nothing more. Second, by concentrating only on the 25 most-momentum-favoured stocks at any point, the fund creates a genuinely different portfolio from a traditional cap-weighted index, which holds all large-cap stocks equally.

Why momentum matters in equity investing

Momentum is one of the most documented patterns in market history: stocks that have risen tend to keep rising for weeks or months, and stocks that have fallen tend to keep falling. This is not the same as saying markets are predictable or that trends last forever — they do not — but it is reliable enough that institutional investors, quantitative hedge funds, and academic researchers treat it as a genuine factor, similar to value or quality.

STRN captures this pattern without requiring daily or weekly rebalancing (which would rack up trading costs and tax complications). The quarterly rhythm is a compromise: frequent enough to stay responsive to shifting momentum, infrequent enough to keep turnover and transaction costs reasonable.

Risks and limits

The fund’s core risk is that momentum regimes reverse. When markets shift from a trend-following environment to a mean-reversion one — when beaten-down stocks suddenly outperform hot ones — a momentum fund can lag for months or longer. This has happened repeatedly in market history: 2003, 2009, 2016, 2020, and 2022 all saw periods where trend strategies underperformed significantly.

Concentration is a secondary risk. Holding only 25 stocks means STRN is more volatile than a traditional large-cap index fund, and the portfolio can swing hard on days when a few of its constituents move sharply. There is also a recency bias built into the design: the fund buys stocks that just went up, which is the opposite of traditional value investing (buying cheap stocks), and this can mean buying at euphoric tops.

Liquidity is generally good because STRN invests in the most-liquid US stocks, but during market stress (when liquidity evaporates fastest) the fund’s narrow composition could make it harder to trade in size without market impact.

How to research STRN

Start with the fund’s prospectus and fact sheet on the Direxion website, which lays out the exact momentum calculation, the rebalancing methodology, and the expense ratio. Compare the quarterly holdings against the previous quarter to see how much the portfolio turns over and how much concentration has shifted. Over longer periods, backtest performance data — available from most fund analytics platforms — shows how the strategy has performed through different market regimes (trending markets, range-bound markets, sharp reversals). Watch also for days when it spikes or crashes relative to the broad market, which often signal when momentum as a factor is being re-evaluated by the market.

Unlike an operating company, STRN has no earnings, no balance sheet, and no management commentary on business fundamentals — only the fund’s mathematical signal, the costs charged to hold it, and whether that signal remains robust through time.