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5 High Beta & Momentum ETFs to Tap the Santa Rally

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Thanks to vaccine optimism coupled with easy money policies, the U.S. stock market is enjoying a boom. The rally has been broad-based with the major indices hitting a series of fresh highs lately.

With only seven trading days left this year, the rally seems to be getting stronger given the so-called Santa Claus rally. A Santa Claus rally refers to the increase in stock prices in the final week of the calendar year (i.e. between Christmas and New Year’s Day) that extends into the first two days of the New Year. According to the Stock Trader’s Almanac, the S&P 500 has gained an average 1.3% during the seven-trading day session since 1969.

Santa Arrives With Bag Full of Gifts!

Coronavirus immunizations have already started in America with Pfizer (PFE - Free Report) shots and more vaccines are on the way. Moderna (MRNA - Free Report) , last week, received the FDA authorization for emergency use against COVID-19 in individuals 18 years of age or older. A vaccine will end the pandemic crisis and set the stage for a speedy recovery, thereby boosting demand for several types of products and services in the economy (read: 5 Small-Cap ETFs Set to Explode on COVID-19 Vaccines).

Increased optimism on further fiscal stimulus supports the Santa rally. The House and Senate passed the new coronavirus relief package worth $900 billion. This includes round of $600 stimulus checks to Americans, $300 per week in augmented federal unemployment insurance for unemployed individuals, more than $300 billion in aid for small businesses including through the Paycheck Protection Program, and tens of billions of dollars across other provisions including rental assistance, vaccine distribution funds and broadband support.

Further, the Fed has pledged to hold rates near zero and will continue the asset purchase program at the current rate until “substantial further progress” has been made toward reaching maximum employment and healthy inflation. The lower rates will continue to drive stock prices up.

Although good tidings have already started flowing in, year-end seasonal factors such as holiday optimism, tax-related affairs, investment of Christmas bonuses, mutual fund manager window dressing, and the “January effect” will continue to push stocks higher (read: 6 Secret Santa ETFs to Add Cheer to Your Portfolio).

While most of the ETFs will receive a nice boost, we have highlighted those that are expected to outperform in the seven-day period and are intriguing choices for a short spell. Notably, high-beta and high-momentum products are expected to lead the market in the weeks ahead. This is because high-beta funds experience larger gains than the broader market counterparts in a bullish market. Meanwhile, momentum investing looks to capture profits from buying hot stocks, which have shown an uptrend over a few weeks or a few months.

Here are the five picks:

Invesco S&P 500 High Beta ETF (SPHB - Free Report)

This ETF tracks the performance of 100 stocks from the S&P 500 Index with the highest beta over the past 12 months. It is widely spread out across each security as none of them holds more than 1.7% of total assets. About 26% of the portfolio is allotted to financials while energy, consumer discretionary, information technology and industrials rounds off the next four with a double-digit allocation each. It has amassed $520.5 million in its asset base and charges 0.25% in expense ratio. The ETF trades in an average daily volume of 775,000 shares (read: 5 ETFs at the Forefront of the Latest Market Rally).

iShares Edge MSCI USA Momentum Factor ETF (MTUM - Free Report)

This ETF follows the MSCI USA Momentum SR Variant Index, holding 125 stocks exhibiting a relatively higher price momentum. It is pretty well spread out across components with none holding more than 6.5% of assets. The ETF is skewed toward the information technology sector at 42.6% while consumer discretionary, health care and communication round off the next three positions. It has accumulated $12.9 billion in its asset base and trades in a solid volume of about 932,000 shares a day. It charges 15 bps in fees per year.

Invesco DWA Momentum ETF (PDP - Free Report)

This fund tracks the Dorsey Wright Technical Leaders Index, which measures the performance of companies that demonstrate powerful relative strength characteristics. It holds 100 securities in its basket with none making up for more than 3.5% of assets. Information technology takes the top spot at 36.1% while healthcare, consumer discretionary and industrials round off the next two spots. The product has amassed $2 billion in its asset base and charges 62 bps in annual fees. It trades in volume of 136,000 shares per day on average.

SPDR Russell 1000 Momentum Focus ETF (ONEO - Free Report)

With AUM of $282.1 million, this product targets the large-cap securities with a combination of core factors (high value, high quality, and low size characteristics) and a focus factor comprising high-momentum characteristics. It follows the Russell 1000 Momentum Focused Factor Index, holding 935 stocks in its basket with each accounting for less than 0.8% share. The ETF charges an annual fee of 20 bps and trades in an average daily volume of 2,000. It carries a Zacks ETF Rank #3 (Hold) (read: Momentum ETFs to Play on Coronavirus Vaccine Hopes).

JPMorgan U.S. Momentum Factor ETF (JPM - Free Report)

This ETF provides domestic equity exposure with a focus on companies with strong risk-adjusted momentum and the potential to enhance returns. It follows the JP Morgan US Momentum Factor Index and holds 266 stocks in its basket with each accounting or less than 2.05% of assets. From a sector look, technology dominates the fund portfolio with 28.4% share while consumer services, financials, health care and industrial round off the next four spots. The fund charges 12 bps in annual fees and trades in volume of 29,000 shares a day on average.

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