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Time for High Beta and Momentum ETFs?

Sanghamitra Saha

U.S. stocks have shrugged off all uncertainties regarding fired Federal Bureau of Investigation Director James Comey’s testimony and went on to soar higher as it gave no big shock. Comey once again hinted at Trump’s alleged connections with Russia, “said he had no doubt that Russia interfered with the election, but was confident that no votes had been altered.”

On the same day, the ECB held a policy meeting, which came in line with expectations of market participants. The status quo in the ECB’ meeting and no additional shocker in Commey’s testimony once again brought Trump’s reflation trade back into the picture.

Trump’s promises of massive tax cuts, $1 trillion of infrastructure spending, considerable defense budget increase, job creation and easing regulations again came into the fore. Investors should note that the most-feared part of Trump administration – a tone of protectionism – has been ebbing gradually (read: 4 Top Sector ETFs & Stocks to Cool Off This Summer).

Also, an announcement from Commerce Secretary “that a national security review of the U.S. steel industry will seek to protect the interests of both domestic steel producers and consumers” boosted infrastructure stocks, specifically steel companies, as per Reuters.

As a result, three key U.S. ETFs, S&P 500-based SPY,Dow Jones Industrial Average-based DIA and Nasdaq 100-based fund QQQ gained in the range of 0.05% to 0.1% on June 8, 2017. Investors are now a bit edgy as there is a chance of a hung parliament in the U.K., at the time of writing.

As per analysts like Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management, “a hung parliament isn’t a worst-case scenario. In fact, it could be positive over the long-term as it means Brexit would have to take a softer-form.” So, investors have a feeling that the U.K. election is not likely to be hugely impactful on U.S. (mainly) and global stocks over the medium term.

All in all, investors can definitely cash in on renewed hopes on Wall Street and positive sentiments. 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.

High Beta ETF

Beta is directly related to market movement. Notably, high beta funds tend to rise or fall more than the stock market and are thus more volatile. When markets soar, high beta funds experience larger gains than the broader market counterparts and thus, outpace their rivals.

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. It gained about 0.9% on June 8, 2017.

High Momentum ETFs

Momentum investing might be an intriguing idea for those seeking higher returns in a short spell. It looks to reflect profits from buying stocks that are sizzling on the market (read: Trump Tax Talk Boosts Market: Time for Momentum ETFs?).

Fidelity Momentum Factor ETF FDMO

The Fidelity U.S. Momentum Factor Index reflects the performance of stocks of large and mid-capitalization domestic companies signaling momentum. It charges 29 bps in fees and added about 0.4% on June 8.

iShares 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. IT gained over 0.3% on June 8.

PowerShares DWA Tactical Sector Rotation ETF DWTR

The underlying index is designed to gain exposure to the strongest relative strength sectors in the U.S. through the universe of nine PowerShares DWA sector Momentum ETFs. It charges 75 bps in fees and was up about 1.1% on June 8.

PowerShares DWA Momentum &Low Volatility Rotation ETF DWLV

Th fund is appropriate for those who want global exposure. The underlying index of the fund looks to gain exposure to the equity market that displays the strongest relative strength at any given time. PowerShares DWA Momentum Portfolio (PDP),PowerShares DWA SmallCap Momentum Portfolio (DWAS) and PowerShares DWA Developed Markets Momentum Portfolio (PIZ) are the top three holdings of the fund. DWLV was up over 0.5% on June 8 (read: Single ETF Targeting Value & Momentum On Its Way).