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Joe Terranova
Scott Mlyn | CNBC
Joe Terranova plans to stick by the winning quantitative approach that’s allowed his Virtus Terranova U.S. Quality Momentum ETF (JOET) to identify stocks like Palantir early before the rest of the market has piled in over the last five years.
The ETF — created by Terranova, chief market strategist for Virtus Investment Partners — has risen 10.9% this year, beating the 6.8% gain in the Invesco S&P 500 Equal Weight ETF (RSP) in that time.
To select the ETF’s holdings, Terranova follows a strict set of rules-based principles. First, he and his team screen the 500 largest U.S. companies for stocks with the highest positive momentum, calculated using their total returns over 12 months. The top 250 stocks are then included in the selection list.
The securities are then graded on three quality factors — return on equity, debt-to-equity ratio and annualized sales growth rate over the past three years. The top 125 stocks with the highest composite scores make up the equal-weighted ETF’s holdings.
Although the fund isn’t actively managed in a traditional sense, it is rebalanced every quarter. Terranova said he doesn’t miss the emotions of actively managing a fund, since his rules-based strategy has helped him capture alpha that he otherwise might have missed.
“In January of ’24, Palantir qualified. Wasn’t in the S&P at this point, because we’re not scanning the S&P,” Terranova said in the “Quality in the Streets, Momentum in the Sheets” episode of The Compound and Friends podcast with fellow CNBC contributor Josh Brown. “I am telling you 100% I would have sold the stock if I had discretion six times over. I would have found six different times to sell that stock, the strategy, the discipline.”
Terranova estimated that he bought into Palantir while it was trading around $16.76. Shares of the analytics tools builder traded around $173 on Monday and have soared 129% in 2025.
The investor also thanked his approach for capturing the market’s “personality” and helping him get in early on other themes, like the current healthcare rally. On the flip side, Terranova’s strategy has also helped him sell out of positions that he otherwise might have grown attached to.
“I have more affection towards the holdings that have been there for multiple quarters,” he told CNBC on the sidelines of the podcast episode recording. “Tesla’s a great example. Tesla’s revenue growth flattened out, and I could see what was coming — that we were going to sell Tesla. And on Halloween, the strategy liquidated Tesla, which looks like a pretty good move.”
Going forward, Terranova intends to build a suite of ETF products that applies his investing rules to other assets outside of U.S. large-cap stocks, such as small-caps and European equities. He believes his strategy will continue to succeed in allowing him to create a core equity holding and shock absorber for investors’ portfolios.
“Momentum is a reflection of technical confidence. Quality is a reflection of fundamental confidence. And you want to invest around the confidence,” Terranova said to CNBC. “To me, that’s where you get the long-term success.”
The JOET fund has an expense ratio of 0.29% and has around $240 million in assets under management.