By ETF Trends

Equity market volatility tested investors’ nerves in 2018. Both the S&P 500 and Russell 1000 indexes finished the year with average annualized volatility of about 17 percent while that figure was closer to 23 percent for the tech-heavy Nasdaq-100 Index.

Relative strength, a momentum-based investing technique that compares a security’s strength to that of the overall market, can help investors weather turbulent market environments. Philadelphia-based Clark Capital Management Group, Inc. utilizes proprietary, quantitative relative strength models in evaluating over 200 exchange traded funds (ETFs).

Clark Capital’s process includes running 20,000 relative strength models to rank the ETFs in the firm’s selection universe. Mason Wev, a portfolio manager at Clark Capital, recently discussed with ETF Trends the firm’s relative strength strategies and where he sees some areas of opportunity for investors in 2019.

“The relative strength methodology identifies outperforming and underperforming market themes and aims to exploit these trends,” said Wev. “We would note that avoiding underperformers is as important as owning outperformers. We find that the methodology thrives when there are strong themes of leadership in global markets (such as sustained periods of upward or downward trends). Conversely, we find that relative strength may struggle when there are no clear market themes or market leadership.”

Why Now For Relative Strength

Clark Capital’s relative strength strategies are quantitative, which keeps human emotion out of the equation. That can be useful at times of elevated market turbulence and investor angst. Additionally, Clark Capital’s strategies go beyond finding ETFs displaying favorable relative strength traits. The firm also identifies securities with unattractive relative strength, steering investors away from those assets.

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