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High-Momentum and Beta ETFs to Play on Fading Fears?

Sanghamitra Saha
Mutual Fund Report for PGOFX

After natural and political storms played mischief for over a week, the global market has finally taken a breather. Substantial sell-offs triggered by North Korea’s missile launch and its tensions with Trump, two devastating hurricanes in the United States, oil price issues and overvaluation concerns in the domestic equity market now appear overdone.

First, proving many wrong, North Korean dictator Kim Jong Un threw a party over the weekend for scientists who made the country’s nuclear tests possible to celebrate the government’s 69th anniversary. Many had expected yet another missile launch on that day (read: Value ETFs & Stocks to Beat Market Volatility).

Irma, now a Category 2 storm, is expected to wreak havoc on Florida’s west coast. But much of the destruction appears to have been priced in the present equity valuation. Also, Hurricane Irma lashed out on Florida weaker than anticipated (read: Hurricane Irma: ETF Winners & Losers).

In any case, the impact of hurricanes on the broader stock market has not been as huge as was being feared for the last few days. “JPMorgan Chase & Co. studied stocks during the 15 biggest hurricanes since 1965 and found that the S&P 500 fell an average 0.3 percent during the two weeks surrounding the events,” as per Bloomberg. Already, Insurance companies’ shares started to recoup losses.

On the other hand, developments in the oil patch were positive. Oil prices recovered lately after the Saudi oil minister indicated an extension of the deal to reduce global oil supplies beyond March 2018 with his Venezuelan and Kazakh counterparts (read: What Lies Ahead for Oil ETFs?).

This news also soothed worries about an oil price crash that emanated from poor demand for Hurricane Irma. On Sunday, the hurricane cut power to more than 3 million homes and businesses in Florida.

Investors should also note that New York Fed President William Dudley told CNBC that Hurricanes Harvey and Irma are likely to boost economic activity in the long term as purchases and the need for remodeling will be higher. However, the near-term impact is definitely severe.

Another piece of good news came from Apple AAPL which is expected to disclose its latest update to iPhone on Tuesday. Three new models are reported to be released — iPhone 8, iPhone 8 Plus, and iPhone X. Normally, “Apple shares rise a little bit after the news of a new iPhone,” as per the source.

Why Momentum & High Beta Investing?

All in all, investors can definitely cash in on these high hopes and positive sentiments. While we do not believe that the likely bounces will have legs, investors’ sentiment about risky investments is relatively relaxed

Targeting high-beta and high-momentum ETFs could prove to be great tools in this regard. Below we highlight a few high-beta and momentum ETFs that may find a place on investors’ wish list.

ETF Picks

iShares Edge MSCI USA Momentum Factor ETF MTUM

This ETF seeks to track the performance of large- and mid-cap U.S. stocks exhibiting relatively higher momentum characteristics. The fund charges 15 bps in fees.

PowerShares DWA Momentum Portfolio PDP

The fund looks to track the Dorsey Wright Technical Leaders Index. It includes about 100 U.S. companies from the NASDAQ US Benchmark Index. The fund charges 63 bps in fees in total.

Fidelity Momentum Factor ETF FDMO

The Fidelity U.S. Momentum Factor Index reflects the performance of stocks of large and mid-capitalization U.S. companies that exhibit positive momentum signals. It charges 29 bps in fees.

Elkhorn Lunt Low Vol/Hiagh Beta Tactical ETF LVHB

The fund is based on the Lunt Capital US Large Cap Equity Rotation Index, which looks to switch between low-volatility and high-beta stocks on the S&P 500. The strategy seeks to capture alpha created by the wide dispersion between low volatility and high beta stocks. The fund charges 49 bps in fees.

PowerShares S&P 500 High Beta Portfolio SPHB

This fund tracks the performance of about 100 stocks from the S&P 500 Index with the highest realized volatility over the past 12 months. The fund charges 25 bps in fees.

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