With more than three quarters of the S&P 500 having reported
4th quarter earnings, we did a deep dive into our ETFG Behavioral Quant movers to
see what funds are picking up momentum and which are starting to look wistfully
at the broader market. While the healthcare sector continues to see
the fastest overall earnings growth, big earnings surprises in the tech sector
have blown away analyst’s year end expectations for earnings growth and not
surprisingly the sector has come to dominate our Behavioral Quant movers list.
One of the biggest gainers last week was the iShares PHLX
Semiconductor ETF (SOXX) which capped the week with a strong 5% advance on the
back of Qualcomm’s agreement with China’s National Development and Reform
Commission (NDRC) to end its anti-trust investigation and pushed the stock up
nearly 6.9% for the week. SOXX
wasn’t the only tech fund to see a strong shift in momentum, as both the iShares
U.S. Technology ETF (IYW) and the iShares North American Technology Index fund
(IGM) saw a major sentiment shift that sent their Quant scores soaring. Don’t let their nearly identical names and
top ten holdings fool you; there is one major difference between the funds with
IGM having nearly 2x the holdings of IYW and includes allocations towards
internet retail (Amazon) and services (ADP) that IYW is lacking, although this
comes at the expense of a seriously reduced allocation to Apple (9.2% to IYW’s
19.2%). But that more diversified focus
might be the reason why smaller IGM shot past IYW to land at the 16th
spot in our Quant rankings. Those
investors who like to focus on the forward P/E ratio but still love tech stocks
might want to take heart; the tech sector is now trading
at a forward P/E ratio of 16.1 compared to 17.1 for the market as a whole.
Earnings misses at Citigroup and Morgan Stanley have
weighed heavily on the S&P 500’s earnings (in fact quarterly earnings would
be up 8.8% ex financials versus the blended 6.3%) and the performance of broad
sector trackers such as the Financial Select Sector SPDR (XLF) which in
addition to underperforming last week, remains in the red YTD with a loss of
1.21% compared to a 1.85% gain for the broader market. XLF may have the third weakest behavioral
score of any of the select sector SPDR’s, the weakness has spilled over to the SPDR
KBW Bank ETF (KBE) and iShares Dow Jones U.S. Financial Services Index Fund ETF
(IYG), both of which saw major drops in their Quant Behavioral scores last
week. Unlike the tech ETF’s IYM and IGM,
there’s no one underlying name that has been weighing down both funds. With heavy exposure to large-cap names
including last week’s biggest loser, American Express, the amount of pain
heaped upon IYG isn’t surprising while KBE’s exposure to those small banks
hardest hit by a low interest rate environment (and who stand to benefit the
most from expanding net interest margins) has helped it weather the financial
storm in 2015. So far, the fund is only
down .21% YTD compared to -1.64% for IYG and -1.21% for XLF.
But for all of those buy and hold investors in bank
stocks, the financial sector currently has the lowest forward price-to-earnings
ratio in the S&P 500 at 13.5 versus 17.1 for the market as a whole. And what’s the most “expensive” sector? Not surprisingly, energy stocks at a forward
P/E of 27.6 as collapsing earnings forecasts for the coming year have pushed
its forward P/E to more than twice its long-term averages while simultaneously
pushing the 4Q revenue growth for the index from 6.1% ex energy to 3.1% as of
2.13. While there were no energy names
on last week’s list of big Quant movers, the Energy Sector Select SPDR fund
(XLE) has now outperformed the S&P 500 for 4 straight weeks as energy
prices have seemingly stabilized for now.
But even as the energy sector shows signs of life, the heartbeat is
starting to fade in the healthcare sector.
Despite having the strongest earnings growth rate in the S&P, the
Healthcare Select Sector SPDR (XLV) has now underperformed the market for the
last two weeks as surging confidence in equities since the start of February
has weakened support for last year’s outperformers like utilities (XLU down
6.5%) and REIT’s (IYR down 1.13%) while healthcare has managed an anemic 2.09%
gain. With above market valuations and
high growth forecasts, careful market watchers might want to keep their focus
on the sectors at the extreme ends of the market.
Thank you for reading ETF Global Perspectives!
Thank you for reading ETF Global Perspectives!
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