Bet on High Beta & Momentum ETFs to Cash In On Santa Rally
Wall Street has been sizzling hot this holiday season, with the three major U.S. bourses maintaining their seven-week solid momentum. Speculation that the Fed is done with interest rate hikes is the major catalyst. The solid trend is likely to continue, given that the Santa Claus rally is on the way.
The 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. This looks more real this year, given that the Fed has boosted optimism in the stock market, indicating deeper rate cuts than expected for the next year (read: 5 Secret Santa ETFs That Might Surprise You This Christmas).
As such, most of the ETFs will likely see a nice boost. Notably, high-beta and high-momentum products are expected to outperform in the seven-day period and are intriguing choices for a short spell. These include Invesco S&P 500 High Beta ETF SPHB, iShares MSCI USA Momentum Factor ETF MTUM, Invesco Dorsey Wright Momentum ETF PDP, Invesco S&P MidCap Momentum ETF XMMO and Invesco S&P SmallCap Value with Momentum ETF XSVM.
High-beta ETFs experience larger gains than the broader market counterparts in a bullish market, while momentum investing looks to capture profits from buying hot stocks, which have shown an uptrend over a few weeks or months.
Santa on the Way!
The Fed, in its latest meeting, kept interest rates steady for the third time and penciled in three rate cuts of a total of 75 bps for the next year, compared with the previous forecast of two rate cuts in 2024. This has spread huge optimism in the stock market, driving the major indices to new highs.
Americans are feeling more confident about the economy than they did over the past few months, heading into Christmas. Consumer sentiment rebounded sharply in early December as worries about inflation receded. Retail sales also posted surprise growth in November after declining in the prior month. The data points to resilient consumers and a strong start to the holiday season, justifying that Santa is on the way (read: ETFs Set to Gain Amid Robust Holiday Consumer Sentiment).
Though good tidings have already started flowing in thanks to the Fed, 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.
Since 1950, the S&P 500 has risen 1.3% on average over the final five trading days of December and the first two of January, according to the Stock Trader’s Almanac. The Santa Claus rally has occurred in 59 years since 1950, including 2022-23, when the S&P 500 rose 0.8% over the seven trading days.
ETFs to Bet On
Invesco S&P 500 High Beta ETF (SPHB)
Invesco S&P 500 High Beta ETF tracks the performance of 101 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 the total assets. About 35% of the portfolio is allotted to information technology, while consumer discretionary and financials round off the next two with a double-digit allocation each.
Invesco S&P 500 High Beta ETF has amassed $580.7 million in its asset base and charges 0.25% in annual fees. The ETF trades in an average daily volume of 592,000 shares (read: 5 Undervalued Stocks in the S&P 500 ETF to Buy for 2024).
iShares MSCI USA Momentum Factor ETF (MTUM)
iShares MSCI USA Momentum Factor ETF follows the MSCI USA Momentum SR Variant Index, holding 123 stocks exhibiting a relatively higher price momentum. It is pretty well spread out across components, with none holding more than 5.8% of the assets. iShares MSCI USA Momentum Factor ETF is skewed toward the information sector at 41.3% while industrials, communication and consumer discretionary round off the next spots with double-digit exposure each.
iShares MSCI USA Momentum Factor ETF has accumulated $8.3 billion in its asset base and trades in a solid volume of about 356,000 shares a day and charges 15 bps in fees per year.
Invesco Dorsey Wright Momentum ETF (PDP)
Invesco Dorsey Wright Momentum ETF tracks the Dorsey Wright Technical Leaders Index, which measures the performance of companies that demonstrate powerful relative strength characteristics. It holds 102 securities in its basket, with none making up for more than 3.1% of assets. Industrials and information technology take the largest share at 28.5% and 26.1%, respectively, while financials and consumer discretionary round off the next two spots.
Invesco Dorsey Wright Momentum ETF has amassed $1.1 billion in its asset base and charges 62 bps in annual fees. It trades in a volume of 42,000 shares per day on average.
Invesco S&P MidCap Momentum ETF (XMMO)
Invesco S&P MidCap Momentum ETF follows the S&P Midcap 400 Momentum Index, which is designed to identify mid-cap firms having the highest momentum scores. It holds 74 stocks in its basket, with key holdings in industrials, consumer discretionary and financials.
Invesco S&P MidCap Momentum ETF has AUM of $1.1 billion and charges 34 bps in annual fees. It trades in an average daily volume of 77,000 shares and has a Zacks ETF Rank #2 (Buy).
Invesco S&P SmallCap Value with Momentum ETF (XSVM)
Invesco S&P SmallCap Value with Momentum ETF offers exposure to the companies having the highest "value scores" and "momentum scores" by tracking the S&P 600 High Momentum Value Index. XSVM holds a basket of 129 stocks, each making up for less than 1.6% share. Invesco S&P SmallCap Value with Momentum ETF has a double-digit allocation each in consumer discretionary, financials, industrials and energy sectors.
Invesco S&P SmallCap Value with Momentum ETF has AUM of $829.4 million and an average daily volume of 73,000 shares. XSVM charges 36 bps in annual fees and has a Zacks ETF Rank #3 (Hold).
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iShares MSCI USA Momentum Factor ETF (MTUM): ETF Research Reports
Invesco S&P 500 High Beta ETF (SPHB): ETF Research Reports
Invesco Dorsey Wright Momentum ETF (PDP): ETF Research Reports
Invesco S&P MidCap Momentum ETF (XMMO): ETF Research Reports
Invesco S&P SmallCap Value with Momentum ETF (XSVM): ETF Research Reports
