“In addition to what appear to be strong areas of the market, relative strength analysis also helps us to identify potentially weak asset classes in the market,” said Wev. “Our proprietary models help manage portfolio risk by signaling when to shift to safer sectors within the asset class, or to defensive asset classes.”
During the fourth-quarter broader market swoon, some defensive ETFs displayed attractive relative strength attributes, a point reflected by ETF inflows during the last three months of 2018. That theme is extending into early 2019 as funds such as the iShares MSCI USA Minimum Volatility ETF (Cboe: USMV) continue adding assets.
USMV, the largest US-listed low volatility ETF, is among the funds used by Clark Capital. The low-volatility factor is based on the idea that low volatility funds can help cushion against market turns, limiting drawdowns that investors experience while providing upside potential. Consequently, the low- or min-vol strategies may produce better risk-adjusted returns over the long haul, which has been backed by extensive academic research.
Going With Growth
Global economic growth is expected to remain solid this year, a trend that could provide a ballast for growth stocks and funds, such as the SPDR S&P 500 Growth ETF (NYSEArca: SPYG), to rebound. Clark Capital’s Wev noted large-cap growth and technology are among the segments bouncing back early this year. The $3.50 billion SPYG, which tracks the S&P 500 Growth Index, allocates almost a quarter of its weight to technology stocks.
Risks such as fading fiscal stimulus and tighter monetary conditions are on investors’ minds as 2019 moves along, but Clark Capital’s relative strength strategies are poised to thrive amid those uncertainties.
“These risks should define the economic backdrop this year,” adds Wev. “However, we don’t think that these dynamics will end the current economic expansion, and we don’t see a recession on the horizon. The fourth quarter correction made valuations at least closer to long-term medians, which reduces the risks of another similar downturn.”