The third quarter of 2025 brought about a notable shift in the investment climate, revealing a far more robust environment than previously observed, particularly when compared to the restricted opportunities of earlier periods. The Virtus Terranova U.S. Quality Momentum ETF (JOET) recorded a net asset value (NAV) return of 5.12%, aligning closely with its benchmark's 5.24% return. However, this performance did not quite match the broader market, as reflected by the S&P 500 Index. Significant positive contributions to the fund's returns came from holdings such as AppLovin Corp., Arista Networks, Inc., Newmont Corporation, Lam Research Corporation, and Tesla, Inc. A pivotal development during this period was the Federal Reserve's recommencement of its rate-cutting cycle, initiated in the fall of 2024, with a 25-basis-point reduction in late September 2025.
During the third quarter, the strategic allocation across different sectors proved to be a hurdle for the fund's overall performance when juxtaposed with the broader S&P 500 Index. Specifically, the choices made within the healthcare, information technology, and industrial sectors did not yield the desired results relative to the market benchmark. This indicates that while individual stock picks in these areas might have had potential, the sector-wide positioning led to a comparative underperformance.
The Terranova U.S. Quality Momentum Index, which guides JOET's investment strategy, employs a distinctive methodology. It first identifies securities demonstrating strong technical momentum, then subjects them to a rigorous ranking process based on fundamental quality indicators. This meticulous approach culminates in a portfolio comprising 125 equally weighted, well-established U.S. securities. The index is systematically rebalanced on a quarterly basis, ensuring that the portfolio continuously adheres to its twin objectives of quality and momentum. This disciplined rebalancing mechanism is designed to capture evolving market dynamics and maintain the fund's strategic alignment.
A notable event within the quarter was the Federal Reserve's decision to lower interest rates. This move marked the resumption of a rate-cutting cycle that had originally commenced in the fall of 2024. The reduction of 25 basis points in late September 2025 was a significant policy adjustment, influencing borrowing costs, investor sentiment, and the broader economic outlook. Such monetary policy shifts are critical drivers of market behavior, often leading to reassessments of asset valuations and investment strategies across various sectors.
The Virtus Terranova U.S. Quality Momentum ETF (JOET) is constructed with a focus on 125 equally weighted U.S. equities. This equal-weighting scheme minimizes concentration risk and ensures that each holding contributes meaningfully to the portfolio's performance. The fund undergoes quarterly rebalancing to ensure it continues to meet its criteria for quality and momentum, reflecting a dynamic investment approach designed to adapt to market changes. Furthermore, JOET operates with a gross expense ratio of 0.29%, offering a cost-effective vehicle for investors seeking exposure to quality and momentum factors in the U.S. equity market.
Overall, the third quarter of 2025 highlighted an invigorated investment landscape characterized by diverse opportunities. While JOET demonstrated strong tracking against its specific benchmark, achieving a 5.12% return at NAV, it faced challenges in outperforming the broader S&P 500 Index. The strategic framework emphasizing quality and momentum, coupled with regular rebalancing, remains central to the fund's long-term objectives. The Federal Reserve's policy adjustments further underscore the dynamic nature of financial markets and the importance of adaptable investment strategies.