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Not a Merry Christmas for Wall Street: Bet on These ETFs

Sweta Killa

With only five trading days left this year, there are no signs of a Santa Claus rally or an increase in stock prices in December, more specifically during the final week of the calendar year (i.e. between Christmas and New Year’s Day). The rally often extends into the first two days of the New Year. In the past five decades, the final week of the year and the first couple of trading sessions in January have registered more than 1% gain.

Since 1928, the S&P 500 has recorded average gain of 1.7% and posted positive returns 78% of the times in the rally period, according to data provided by Ari Wald of New York-based investment firm Oppenheimer (read: 5 Secret Santa ETFs & Stocks to Buy for Christmas).

Hopes of a Santa rally faded this year as pessimism spread across Wall Street with the S&P 500 on the brink of a bear market (down 18% from its peak early this year). The Nasdaq Composite Index is also in a bear market (down 22% below its record reached in August) while Dow Jones logged in its worst week since the financial crisis in 2008.

Why Santa is Giving Wall Street a Miss

The broader stock market has been on a tumultuous ride in the recent months due to a combination of factors including lingering U.S.-China trade tensions, slowing economic growth in Europe and Japan, troubles in emerging markets, threats of global slowdown as well as slide in oil price.

In fact, the S&P 500 and Dow Jones are on track for the worst December since the Great Depression in 1931. According to Bespoke investment Group, more than half of the stocks in the S&P 500 are in bear territory, having lost 20% from their 52-week highs.

The sell-off worsened last week following the latest Fed FOMC meeting, wherein Powell raised rates for the fourth time this year but came with a less dovish view. The central bank hinted two lift-offs in 2019, down from the previous projection of three increases but up from one rate hike anticipated by the market. Additionally, the partial government shutdown added to the woes. The market turbulence pushed the S&P 500 to record its first annual loss in a decade while Dow Jones logged its worst year since 2008 (read: 7 Inverse ETFs That Soared More Than 70% in Q4).

Given continued bearish sentiments, we believe Santa might not make it to Wall Street this year. As such, investors should trade cautiously with alternatives products to end the year. Below, we have highlighted some ETFs that have gained so far and are expected to do so in the final week of this year:

AGFiQ US Market Neutral Momentum Fund MOM

This fund follows the Dow Jones U.S. Thematic Market Neutral Momentum Index, providing exposure to the “momentum” factor by investing long in U.S. equities that have had above average total returns and shorting those securities that have had below average total returns. This approach results in long and short positions in 200 stocks in equal proportions. MOM has accumulated $4.9 million in its asset base and charges investors 1.88% in annual fees. It trades in paltry volume of 3,000 shares and has surged 26.8% so far this year.

AGFiQ US Market Neutral Anti-Beta Fund BTAL
 
The fund invests in low-beta securities while at the same time shorts high-beta stocks of approximately equal dollar amounts within each sector. It seeks to deliver the spread return between low and high beta stocks. This can easily be done by tracking Dow Jones U.S. Thematic Market Neutral Anti-Beta Index. This approach results in long and short positions in 200 stocks, in equal proportions. The fund charges 1.06% in fees per year and trades in a light volume of 16,000 shares per day. BTAL has accumulated $32.2 million in its asset base and has gained 15.7% in the year-to-date timeframe (read: 5 Long/Short ETFs Handily Beating S&P 500 in 2018).

ProShares Merger ETF MRGR
 
This product provides exposure to a global merger arbitrage strategy, which seeks to capture the spread between the price at which the stock of a company (a target) trades after a proposed acquisition is announced and the value (cash plus stock) that the acquiring company has proposed to pay for the stock of the target (a spread). This can be easily done by the S&P Merger Arbitrage Index. The fund holds a well-diversified portfolio of 33 stocks and charges 75 bps in annual fee. The ETF has been able to manage assets worth $5.5 million while it sees light volume of just 3,000 shares a day. It is up nearly 3% so far this year.

ProShares Long Online/Short Stores ETF CLIX

This fund seeks to benefit from both outperforming online and underperforming physical retailers through the long/short strategy. It combines the 100% long position in retailers that primarily sell online or through other non-store channels with a 50% short position in those that rely principally on physical stores by tracking the performance of the ProShares Long Online/Short Stores Index. The approach reduces equity market exposure and results in less volatility than long-only equity strategies. The ETF charges 65 bps in annual fees from investors and trades in average daily volume of 14,000 shares. It has accumulated $40.4 million in its asset base (read: Holiday Season 2018 Should Make This ETF Jump in Joy).

ProShares Managed Futures Strategy ETF FUT

This product provides positive returns that are not directly correlated to broad equity or fixed income markets. It seeks to profit in rising and falling markets by taking long and short positions in futures across asset classes such as commodities, currencies and fixed income. FUT is the only managed futures ETF to use an innovative risk-weighting methodology so that each commodity, currency, and fixed income position contributes an equal amount of estimated risk to the overall portfolio when it rebalances monthly. The fund charges 75 bps in annual fees and trades in volume of 2,000 shares a day on average. It has AUM of $3.1 million and has added 1.5% in the year-to-date timeframe.  

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