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Momentum, Yield or Low Volatility ??? Which ETFs Are Outperforming Now?
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Wall Street remained volatile lately thanks to a host of concerns. Uncertainty over the materialization of Trump’s pro-growth promises after his failure to pull off the Health Care bill due to want of support, disappointing auto sales and hints of QE reversal this year by the Fed kept market sentiment on the edge.
The fear of stretched valuations is also rife after an astounding rally in the last five months on Trump’s repeated pledges for fiscal reflation. The S&P 500 is trading at about 18 times earnings estimates for the next 12 months, above its long-term average of 15.
Against such a backdrop, let’s take a look the style of investing that is ruling the market. Is it still momentum that investors clamoring for? Or are they hunting for yields in a still low-rate environment? We also need to find out if investors are weighing on low volatility options apprehending a reversal of Trump trade.
To do so, we look at the 10-day price performance of SPDR Russell 1000 Momentum Focus ETF (ONEO - Free Report) , SPDR Russell 1000 Yield Focus ETF (ONEY - Free Report) and SPDR Russell 1000 Low Volatility Focus ETF (ONEV - Free Report) .
To cross check the mood of the market we also tried ETF examples of other issuers of the same investing theme. For momentum, we picked iShares MSCI USA Momentum Factor ETF (MTUM - Free Report) , for yield we picked Vanguard High Dividend Yield ETF (VYM - Free Report) and forlow volatilityPowerShares S&P 500 Low Volatility Portfolio ETF (SPLV - Free Report) was our choice.
Below we present the performance chart:
Momentum Wins
From the chart we see, momentum is the winning option with ONEO (up 0.94%) and MTUM (up 0.81%) both topping the returns of the other two investing styles. Both funds closely lagged Nasdaq-100 ETF (QQQ - Free Report) , which is tech heavy and high growth in nature. In fact, QQQ is in superb momentum right now and has already logged more than 20 record closes this year (read: High Beta and Momentum ETFs to Buy on High Hopes).
Investors should note that all is not lost yet. Sentiment is still upbeat on earnings improvement by U.S. companies. Many investors still have faith in Trump’s proposed policies and upbeat economic data points barring a few letdowns. Plus, a still-low interest rate environment is goading investors to bet big on momentum investing. Yield on 10-year U.S. Treasury notes were at 2.34% as of April 6, 2017 despite talks of deleveraging the balance sheet (as per the latest Fed minutes). The benchmark yield is now 28 bps down from this year's high of 2.62% hit in mid-March (read: ETF Strategies to Win if Fed's Reverse QE Hits Soon).
Yield Becomes Runner
Second comes ONEY with 0.77% returns and 3.05% yields while VYM was up 0.1% and yields 2.95%. With the Fed offering a dovish rate hike guidance in its March meeting, yields have been on a downtrend.
Also, ebbing Trump bump in the market forced some investors toward safe haven assets. This in turn kept bond yields somewhat submissive. So, several yielding hungry investors wanted to be part of stock market optimism while enjoying solid current income.
Low Volatility Hardly Cared About
Now, low volatility ETFs are at the bottom of the list of investors’ favorites. ONEV added 0.36% in the last 10 days, which is the lowest than the other two counterparts (ONEO and ONEY). Also, another low volatility ETF SPLV lost 0.46% in the last 10 trading sessions (as of April 6, 2017).
The propensity to park money in low volatility stocks normally rises when volatility levels are high. Investors believe low volatility ETFs tend to lower risk and generate decent returns. So, the latest price performance once again ensures that market sentiments are steady. Investors are yet to buy Trump slump and overvaluation concerns raised by several analysts.
Want to learn more about smart beta ETF investing? Check out our latest podcast for additional information!
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Momentum, Yield or Low Volatility ??? Which ETFs Are Outperforming Now?
Wall Street remained volatile lately thanks to a host of concerns. Uncertainty over the materialization of Trump’s pro-growth promises after his failure to pull off the Health Care bill due to want of support, disappointing auto sales and hints of QE reversal this year by the Fed kept market sentiment on the edge.
The fear of stretched valuations is also rife after an astounding rally in the last five months on Trump’s repeated pledges for fiscal reflation. The S&P 500 is trading at about 18 times earnings estimates for the next 12 months, above its long-term average of 15.
Against such a backdrop, let’s take a look the style of investing that is ruling the market. Is it still momentum that investors clamoring for? Or are they hunting for yields in a still low-rate environment? We also need to find out if investors are weighing on low volatility options apprehending a reversal of Trump trade.
To do so, we look at the 10-day price performance of SPDR Russell 1000 Momentum Focus ETF (ONEO - Free Report) , SPDR Russell 1000 Yield Focus ETF (ONEY - Free Report) and SPDR Russell 1000 Low Volatility Focus ETF (ONEV - Free Report) .
To cross check the mood of the market we also tried ETF examples of other issuers of the same investing theme. For momentum, we picked iShares MSCI USA Momentum Factor ETF (MTUM - Free Report) , for yield we picked Vanguard High Dividend Yield ETF (VYM - Free Report) and forlow volatilityPowerShares S&P 500 Low Volatility Portfolio ETF (SPLV - Free Report) was our choice.
Below we present the performance chart:
Momentum Wins
From the chart we see, momentum is the winning option with ONEO (up 0.94%) and MTUM (up 0.81%) both topping the returns of the other two investing styles. Both funds closely lagged Nasdaq-100 ETF (QQQ - Free Report) , which is tech heavy and high growth in nature. In fact, QQQ is in superb momentum right now and has already logged more than 20 record closes this year (read: High Beta and Momentum ETFs to Buy on High Hopes).
Investors should note that all is not lost yet. Sentiment is still upbeat on earnings improvement by U.S. companies. Many investors still have faith in Trump’s proposed policies and upbeat economic data points barring a few letdowns. Plus, a still-low interest rate environment is goading investors to bet big on momentum investing. Yield on 10-year U.S. Treasury notes were at 2.34% as of April 6, 2017 despite talks of deleveraging the balance sheet (as per the latest Fed minutes). The benchmark yield is now 28 bps down from this year's high of 2.62% hit in mid-March (read: ETF Strategies to Win if Fed's Reverse QE Hits Soon).
Yield Becomes Runner
Second comes ONEY with 0.77% returns and 3.05% yields while VYM was up 0.1% and yields 2.95%. With the Fed offering a dovish rate hike guidance in its March meeting, yields have been on a downtrend.
Also, ebbing Trump bump in the market forced some investors toward safe haven assets. This in turn kept bond yields somewhat submissive. So, several yielding hungry investors wanted to be part of stock market optimism while enjoying solid current income.
Low Volatility Hardly Cared About
Now, low volatility ETFs are at the bottom of the list of investors’ favorites. ONEV added 0.36% in the last 10 days, which is the lowest than the other two counterparts (ONEO and ONEY). Also, another low volatility ETF SPLV lost 0.46% in the last 10 trading sessions (as of April 6, 2017).
The propensity to park money in low volatility stocks normally rises when volatility levels are high. Investors believe low volatility ETFs tend to lower risk and generate decent returns. So, the latest price performance once again ensures that market sentiments are steady. Investors are yet to buy Trump slump and overvaluation concerns raised by several analysts.
Want to learn more about smart beta ETF investing? Check out our latest podcast for additional information!
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>