U.S. Markets close in 4 hrs 30 mins

Why You Should Buy High Beta, Momentum ETFs & Stocks Now

After a blockbuster week, the Wall Street rally is expected to continue into the new week, given the series of positive news. This is especially true following the trade truce between the United States and China at the Group of 20 meeting in Argentina over the weekend that has averted an escalation in trade war. The Fed’s dovish view, an accelerating economy and the prospect of addressing the glut in oil supplies will support stocks toward the end of the year.

Notably, the S&P 500 and Nasdaq Composite Index logged in its best week since 2011 while the Dow Jones posted its best week since November 2016. This marks a sharp reversal from a week ago when the S&P 500 stumbled into correction territory by declining 10% from its latest peak.  

Last week, Fed Chair Powell said that interest rates were "just below" the level that would be neutral for the economy — meaning they will neither speed up nor slow down economic growth. This is in contrast to October remarks — the rate was “a long way” from neutral — which led to worries that the rate increases will crimp growth. Additionally, the subsequent minutes from the central bank's latest meeting suggests that the Fed will likely raise rates this month but might pause hikes next year (read: Odds for December Fed Rate Hike Pretty High: ETFs to Invest).

Further, the American economy has been on a solid pace of growth with robust job creation, strong GDP growth, a 50-year low unemployment rate, the fastest pace of wage gains in nearly a decade, and rising consumer and business confidence.

While the rally seems to be broad based, a few corners are expected to outperform in the current bullish environment and are intriguing choices for a short spell. Notably, high beta and high momentum products are expected to lead the market. This is because high beta funds experience larger gains than the broader market counterparts in a bullish market. Momentum investing looks to capture profits from buying hot stocks, which have shown an uptrend over a few weeks or months.

ETFs to Buy

Innovator Lunt Low Vol/High Beta Tactical ETF LVHB

This fund tracks the Lunt Capital US Large Cap Equity Rotation Index, which is designed to tactically rotate between low-volatility and high-beta stocks in the S&P 500. The strategy seeks to capture alpha created by the wide dispersion between low volatility and high beta stocks. This approach results in a basket of 100 securities with none making up for more than 1.28% of the assets. Utilities, real estate and financials are the top three sectors with a double-digit exposure each. The ETF has amassed $141.2 million in its asset base and charges 49 bps in annual fees.

Invesco S&P 500 High Beta ETF SPHB

This ETF tracks the performance of 100 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 1.4% of the total assets. More than one-third of the portfolio is allotted to information technology while financials, health care and industrials round off the next two with double-digit allocation. It has AUM of $113.9 million and charges 0.25% in expense ratio.

iShares Edge MSCI USA Momentum Factor ETF MTUM

This ETF provides exposure to large and mid-cap stocks that exhibit a relatively higher price momentum by tracking the MSCI USA Momentum Index. Holding 125 stocks, it is pretty well spread out across components with none holding more than 5.3% of the assets. The ETF is skewed toward the information technology sector at 31.1% while health care, consumer discretionary, and communications round off the next three positions. It has accumulated $9.5 billion in its asset base while charging 15 bps in fees per year (read: Will Powell, Valuation & Holiday Season Power Momentum ETFs?).

Invesco DWA Momentum ETF PDP

This fund tracks the Dorsey Wright Technical Leaders Index, which measures the performance of companies that demonstrate powerful relative strength characteristics. It holds 100 securities in its basket with none accounting for more than 3.2% share. Here again, information technology takes the top spot at 27.7% while industrials, consumer discretionary and health care round off the next three. The product has amassed $1.5 billion in its asset base while charging 63 bps in annual fees.

SPDR Russell 1000 Momentum Focus ETF ONEO

With AUM of $460.9 million, this product targets large cap securities with a combination of core factors (high value, high quality, and low size characteristics), with focus on high momentum characteristics. It follows the Russell 1000 Momentum Focused Factor Index and holds well-diversified 892 stocks in its basket with each making up for no more than 1.03% of the assets. The ETF charges an annual fee of 20 bps.

Stocks to Buy

For stocks, we have chosen the top picks using the Zacks Stock Screener to fit our criteria of a Zacks Rank #1 (Strong Buy) or 2 (Buy), Momentum Score of B or better, and beta greater than 2. Here are the four chosen stocks.

The ExOne Company XONE

It provides three-dimensional printing machines and printed products to industrial customers. With a market cap of $133.01 million and beta of 3.90, the stock has a Zacks Rank #2 and a Momentum Score of B.

Bitauto Holdings Limited BITA

It is engaged in providing Internet content and marketing services for automotive industry in China. With a market cap of $1.34 billion and beta of 2.85, the stock has a Zacks Rank #2 and a Momentum Score of A.

Unit Corporation UNT

This diversified energy company is engaged in exploration and production of oil and natural gas, the acquisition of producing oil and natural gas properties, the contract drilling of onshore oil and natural gas wells, and the gathering and processing of natural gas. It has a market cap of $1.12 billion and a beta of 2.82. Unit Corporation sports a Zacks Rank #1 and has a Momentum Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Equity Investment Life Holding Company AEL

It is a full service underwriter of a broad line of annuity and insurance products, with emphasis on the sale of fixed rate and index annuities. The stock has a market cap of $3.08 billion and a beta of 2.51. The stock has a Zacks Rank #2 and a Momentum Score of A.

Azure Power Global Ltd. AZRE

It is a producer and developer of solar energy. With a market cap of $413.5 million, the stock has a Zack Rank #1 and a Momentum Score of B. The stock has a beta of 2.40 (read: 5 Best Performing Stocks of the Top ETF of November).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>