Joe Terranova on the quantitative approach to the JOET ETF that identifies winners like Palantir early

Joe Terranova plans to stick to the quantitative approach that helped him win Virtus Terranova US Quality Momentum ETF (JOET) Spotting stocks like Palantir early, before the rest of the market has piled on over the last five years.

The ETF, created by Terranova, chief market strategist at Virtus Investment Partners, is up 10.9% this year, outpacing 2019’s 6.8% gain. Invesco S&P 500 Equal Weight ETF (RSP) In that case.

To select the ETF’s holdings, Terranova follows a strict set of rules-based principles. First, he and his team scan the 500 largest U.S. companies for stocks with the highest positive momentum, calculated using their trailing 12-month total returns. It is then included in the top 250 stock selection list.

Securities are then rated based on three quality factors: return on equity, debt-to-equity ratio, and annual sales growth rate over the past three years. The top 125 stocks with the highest composite score make up the ETF’s equally weighted holdings.

Although the fund is not actively managed in the traditional sense, it is rebalanced every three months. Terranova said he doesn’t miss the emotions of actively managing a fund, as his rules-based strategy helps him capture alpha he might otherwise miss.

“On January 24, palantir qualified. “We weren’t in the S&P right now because we’re not scanning the S&P,” Terranova said.Quality on the Streets, Momentum on the Bedsheets” An episode of The Compound and Friends podcast with CNBC contributor Josh Brown. “I’m telling you that if I had six times more discretion, I would sell 100% of the shares. “I would find six different times to sell this stock, strategy and discipline.”

Terranova estimated that it bought Palantir when it was trading around $16.76. Shares of the analytics tools creator traded around $173 on Monday and are up 129% in 2025.

The investor also credited his approach for capturing the “personality” of the market and helping him get in on other themes early, such as the current healthcare rally. On the other hand, Terranova’s strategy also helped him sell positions he might otherwise have stuck with.

“I have more affection for entities that have been there for a few quarters,” he told CNBC during the recording of the podcast episode. “Tesla’s great example. Tesla’s revenue growth has plateaued and I could see what would happen; We were going to sell Tesla. And on Halloween, this strategy liquidated Tesla, which seems like a pretty good move.”

Going forward, Terranova plans to create a suite of ETF products that apply its investment rules to other assets other than U.S. large-cap stocks, such as small-cap stocks and European stocks. He believes his strategy will continue to be successful in allowing investors to create a core stock holding and shock absorber for their portfolios.

“Momentum is a reflection of technical confidence. Quality is a reflection of fundamental confidence. And you want to invest around confidence,” Terranova told CNBC. “To me, that’s where you get long-term success.”

The JOET fund has an expense ratio of 0.29% and has approximately $240 million in assets under management.