This article was originally published on ETFTrends.com.
As the bull market extends, investors are chasing U.S. stocks ETFs despite cheaper valuations in many other markets.
"History suggests that the leadership of the stock market does not rotate into laggards late in the cycle — bull markets don’t broaden. Instead, investors chase the leaders even harder, narrowing bull markets further. This time round, US equities look like the obvious beneficiary," Robert Buckland, chief global equity strategist at Citi, said on Financial Times.
The S&P 500 Index is up 6.8% year-to-date. Meanwhile, the MSCI All Country World Index ex USA is down 4.9%, the MSCI EAFE Index is 3.8% lower and the MSCI Emerging Market Index declined 8.4% so far this year.
"There will be a time when US valuations fall back towards other markets, but it isn’t now. It’s better to be overweight US stocks within a global equity portfolio," Buckland said.
Within U.S. equities, the tech-heavy Nasdaq has been leading the charge, with the Nasdaq-100 Composite rising 16.2% year-to-date, which has befuddled many value-oriented traders even further. Not only have value investors missed out on the leading stock market in the world, but they have missed out on the leading stocks within.
If investors are willing to ride the wave and keep chasing after the highest performing stocks, there are a number of ETF strategies that focus on the momentum factor, which is based on the idea that high-flying stocks will fly even higher. The iShares MSCI USA Momentum Factor ETF (Cboe:MTUM) , the Powershares DWA Momentum Portfolio (PDP) , SPDR Russel 1000 Momentum Focus ETF (ONEO) and Fidelity Momentum Factor ETF (FDMO) provide targeted exposure to the momentum factor, which includes a heavy tilt toward the growth style and technology stocks. For example, MTUM includes a 57% tilt toward large-cap growth and a 29% position in technology stocks.
"There is a good chance this global stock market cycle may narrow further. This would imply further outperformance of US equities and the Nasdaq stocks in particular. Value investors will eventually have their day, but it could be a long, career-threatening wait," Buckland added.
For more information on alternative index-based strategies, visit our smart beta category.
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