Ned Davis Research strategists point out that defensive sectors have substantial allocations in so-called safety funds, including low-volatility and dividend strategies.
The strategists note that if these sectors capitulate, “some ETF and mutual fund investors will be in for a rude awakening if they aren’t watching their underlying sector exposure,” reports Brendan Conway for Barron’s.
Of course, investors can simply use sector ETFs to position for a rotation to cyclicals. But high-beta funds could also make sense along with “momentum” ETFs such as SPDR S&P 1500 Momentum Tilt ETF (NYSEArca: MMTM) and iShares MSCI USA Momentum Factor ETF (NYSEArca: MTUM).
“MMTM could be thought of as an anti-low-volatility ETF,” said David Mazza, head of ETF investment strategy, Americas, for State Street Global Advisors.
The fund concentrates on U.S. stocks exhibiting price momentum.
Turning back to the high-beta ETF, the fund has been outperforming low-volatility strategies since mid-April, after lagging for much of the year.
The chart below shows the relative performance of SPHB versus SPLV.
