Author Archives: Scalper1

The U.S. economy will probably experience a shift in era by this year end, if economic conditions remain unchanged. With the Fed now overtly referring to December as the timeline for raising interest rates after a decade and putting global growth issues aside unlike its prior meetings, investors may now have to rush to alter their portfolio and make it in line with the looming Fed rate hike. Though much of the impending shock has been priced in at the current level, gyrations are still expected in the stock market post lift-off. Though the Fed affirmed that the rate hike trail would be slower, investors know that this will be the beginning of the end of the rock-bottom rates era. Naturally, they will be hunting for the right equity investing strategy. Notably, years of cheap money fueled the U.S. growth stocks as evident from the 106% jump by iShares Russell 2000 Growth ETF (NYSEARCA: IWO ) in the last 10 years and its 75% surge in the last five years (as of November 18, 2015). But, value stocks underperformed, as indicated by iShares Russell 2000 Value ETF ‘s (NYSEARCA: IWN ) 45.3% gain in the last 10 years and about 44% rise in the last five years. Growth investing means buying those companies, which exhibit fast-growing earnings, indulge heavily in capital spending and are forecast to earn at an above-industry rate. This group of companies normally pays lesser dividend or no dividend and capital appreciation is the main motive. Quite understandably, this high-growth proposition requires more capital and lower interest rates to be executed. On the other hand, value strategy includes stocks with strong fundamentals – earnings, dividends, book value and cash flow – compared with their current market prices. These stocks trade below their intrinsic value and are undervalued by the market. This pool of companies normally pays sounder dividends too. Thus, it is historically seen that value stocks perform better than growth stocks in a rising rate environment, mainly due to the difference in their modes of operation. Then, as per analysts , the right time to tap value is when the market reaches its zenith and retreats on overvaluation. For fear of a horrendous sell-off, investors seek safety, which value stocks normally offer unlike growth stocks. Since the market is likely to be wobbly, value stocks can predominate. Moreover, in the absence of cheap money inflows, investors are likely to look for cheaper stocks with great potential rather than the pricey and glamorous growth stocks. All in all, there is a high chance that value stocks will rule the U.S. markets over the next few months. The global investment management firm Pimco also expects this trend to be established in the coming future. Analysts noted that: “During the periods when the Fed was raising interest rates, the value stocks had an average return of 1.2% a month, or 14.4% a year, versus the growth index’s 0.7% a month, or 8.3% a year.” Now with the U.S. economy taking root, job reports showing strength and inflation staying decent, small-cap value stocks should be the best bets ahead. Small-cap stocks are the best measure of domestic economic recovery as these are less exposed to foreign lands. Moreover, terror attacks in several parts of the globe and international growth issues can also be stripped out via U.S. small-cap valued ETFs. Below we highlight three such ETFs, which could be in focus in the coming days. S&P Small Cap 600 Value Index Fund (NYSEARCA: IJS ) The fund looks to provide exposure to U.S. small-cap value stocks by tracking the S&P SmallCap 600 Value Index. The $3.14-billion fund holds a total of 468 small-cap stocks. The fund appears diversified as no stock accounts for more than 0.92% of the basket. Among the different sectors, Financials, Industrials and IT occupy the top three positions with 24.36%, 19.75% and 16.59% of weight, respectively. The fund charges a premium of 25 basis points annually. This Zacks Rank #3 (Hold) ETF was up 1.25% in the last one month (as of November 18, 2015). WisdomTree SmallCap Earnings Fund (NYSEARCA: EES ) For a slightly different approach to the small-cap market, investors may want to consider EES, as it follows earnings-generating companies in the small-cap universe of the U.S. stock market. Furthermore, the fund looks to weight by earnings, giving bigger weights to firms that earn more, irrespective of market capitalization. This results in a portfolio of roughly 950 securities. No stock accounts for more than 1.1% of the fund. Financials (27.34%), Industrials (18.48%), Consumer Discretionary (15.68%) and IT (12.24%) are the top four sectors of the fund. This $382-million fund charges 38 bps in fees. The fund has a Zacks ETF Rank #3 (Hold) while it was almost flat in the last one month. Vanguard Small-Cap Value ETF (NYSEARCA: VBR ) This fund provides exposure to the value segment of the U.S. small-cap market by tracking the CRSP US Small Cap Value Index. It holds a large basket of 843 stocks, which is widely spread across individual securities as none of these has more than 0.6% of assets. In terms of sector exposure, Financials dominates the portfolio at 30%, followed by Industrials (20.5%) and Consumer Services (12.2%). The ETF is quite popular with AUM of more than $5.68 billion. It is one of the low-cost choices in the small-cap space, charging 9 bps in fees per year from investors. The fund added about 0.6% in the last one month. VBR has a Zacks ETF Rank #3. Original post .