“True genius resides in the capacity for evaluation of
uncertain, hazardous and conflicting information.” - Winston Churchill
Though these words were not said about the stock market,
they can certainly resonate with anyone who has been following it over the past
year. As 2016 started, bullish sentiment
was almost unheard of. Macro factors
throughout the global economy were too large to miss and fear overtook the
investment community. Eight months later,
we are in the dog days of summer. China’s
economy had almost collapsed, Britain voted to exit to European Union and major
countries have introduced negative interest rates. The anomaly here is that the stock market is
hitting record highs. As an investor, if
you decided to stick with the sentiment from the beginning of the year and did
not try to evaluate the uncertain, hazardous and conflicting information that
2016 has bought, you would’ve missed out on it all.
Switching gears to our exchange-traded-funds world, we’ve
yet again seen the largest inflows into equity ETFs. As yields throughout the global stock markets
continue to shrink, the returns from equities look tempting even though they
bring on more risk. Another $3B found
its way into those funds by midweek, as you can see on the ETFG fund flows
report.
The technology sector has been a major player in the
markets rally to record highs and the Technology Select Sector SPDR Fund (XLK)
has been riding that wave. This week, the fund hit yet another closing day high
at $47.16 and has returned nearly 10% YTD. This came as Apple (AAPL) returned to mid-April
levels and Microsoft (MSFT) was tittering with a new 52-week high. They both make up 13% and 10% of the fund
respectively.
As for the ETFG Quant movers, we saw the greatest change
in the iShares Currency Hedged MSCI EAFE Small-Cap ETF (HSCZ), which added 8.21
to its Quant score. It is currently
graded as a “B” in our Quant scoring. This fund seeks to reduce the impact of
foreign currencies, relative to the U.S. dollar in small-cap, in non U.S. and
Canadian equities. As said last week in our blog, the current environment of
stretched large cap equity valuations make small cap ETFs look attractive as
vehicles of growth and price appreciation. Compile that with the strong U.S.
dollar and increasing possibility of an interest rate hike by the Federal Reserve
and you find a nice fund that can both protect you and offer some growth. Let’s see what happens after Summer when everyone
returns.
Thank you for reading ETF Global Perspectives!
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