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As the Virtus Terranova U.S. Quality Momentum ETF marks its fifth year in the market, founder Joe Terranova is detailing the disciplined quantitative framework that has powered its ability to identify early breakout stocks — including Palantir — long before they became Wall Street favorites. The fund’s momentum-plus-quality approach, backed by strict rules and quarterly rebalancing, has driven consistent outperformance and shaped Terranova’s broader vision for a family of global ETF products.

Performance and Strategy Overview
JOET has gained 10.9% so far this year, solidly ahead of the 6.8% increase in the Invesco S&P 500 Equal Weight ETF. Terranova attributes the outperformance to the ETF’s mechanical, emotion-free stock-selection process. Rather than relying on discretionary decisions, JOET follows a defined set of rules designed to capture rising leaders across the U.S. large-cap universe.

The strategy begins by screening the 500 biggest U.S. companies and ranking them by 12-month total return momentum. The top 250 names then move into a quality scoring process, where each stock is evaluated on three key factors: return on equity, debt-to-equity ratio and three-year annualized revenue growth. The highest-ranked 125 stocks form the final equal-weighted portfolio, which is refreshed every quarter.

Terranova says this structure helps him avoid emotional decisions that often hurt investors. He emphasized that without these guardrails, he would have sold some long-term winners far too early.

The Palantir Example: A Quantitative Win
One of JOET’s most talked-about successes is its early capture of Palantir. The stock qualified for inclusion in early 2024, even though it wasn’t yet part of the S&P 500. Terranova admitted he likely would have exited the position multiple times based on instinct alone, but the rules held him in.

JOET bought Palantir at approximately $16.76. As of Monday, shares were trading around $173, reflecting a staggering 129% rally in 2025. According to Terranova, this is exactly why disciplined, data-driven investing can outperform traditional discretionary management.

He added that the framework not only identifies rising momentum stories but also helps avoid laggards. Recent strength in healthcare, for example, was picked up by the ETF months before the trend became broadly recognized.

Knowing When to Sell: Removing Emotion From Exits
Terranova explained that the system is equally valuable in identifying when to sell. Stocks with weakening fundamentals quickly fall out of the quality rankings. Tesla was a notable example. As its revenue growth slowed, Terranova saw that the strategy would soon remove it. On October 31, JOET fully exited the stock — a move that has so far proven well-timed.

He noted that although he often grows fond of companies that remain in the ETF for many quarters, staying faithful to the rules ensures better long-term outcomes than emotional attachment ever could.

Expansion Plans: Bringing the Framework to New Markets
Terranova intends to broaden his investment approach into a suite of new ETFs using the same discipline, applied to different segments of the market. Future products may focus on U.S. small-caps, European equities or additional global categories. His goal is to give investors core holdings that blend strong fundamentals with proven momentum, acting both as growth engines and as portfolio stabilizers.

The philosophy, according to Terranova, is simple:
Momentum signals technical confidence.
Quality signals fundamental confidence.
Combining both, he argues, is what drives durable long-term returns.

Fund Structure and Outlook
JOET currently carries an expense ratio of 0.29% and manages approximately $240 million in assets. Terranova believes the demand for transparent, rules-based products will continue rising as investors look for systematic approaches that reduce bias, capture emerging leaders and adapt quickly to market shifts.

He remains confident that the quant-driven structure — which helped uncover names like Palantir early — will continue to position the fund and its future expansions for long-term success.