The S&P 500 is still saddled with a 13% year-to-date loss, but in recent weeks, growth stocks are shaking some of the dust off, potentially signaling that the broader market can finish 2022 on an upbeat note.
Among the sectors recently perking up are the previously downtrodden communication services, consumer discretionary, and technology. Plenty of exchange traded funds are levered to that rebound. One that stands out is the Goldman Sachs Future Consumer Equity ETF (GBUY).
Underscoring inherent flexibility offered by active management, GBUY allocates nearly two-thirds of its weight to the three aforementioned sectors and, interestingly, its largest sector exposure is communication services, not consumer cyclical. Still, GBUY is a credible idea for investors considering strategies that could flourish as bear market conditions wane.
“The math has also become more favorable for investors, in our view. In past periods where equity markets have priced in a -20% pullback, buying into a bear market has generated +24% return over the next 12 months, with a positive hit rate of 75%,” according to Goldman Sachs Asset Management (GSAM). “Similarly, equities have gained on median +33% in the 12-month ahead even after being down -20% in the 1H of the year. As the fundamental picture remains intact, we believe tough starts do not always mean bad finishes.”
Indeed, GBUY scuffled through the first half of 2022, and while it’s recently shown signs of recovery, investors that dealt with that rough start may want to think twice before selling over the near term simply because the fund is displaying signs of life.
“For investors who have already endured today’s bear market losses, we believe staying the course may be the best way to benefit from the potential positive skew of equity returns, especially if time horizon and risk tolerance is on one’s side,” added GSAM. “An analysis of past bear markets suggests that the potential cost of being early to a recovery has been small—being 15% early to a bottom has added only 49 days to the recovery timeline.”
Waiting things out with GBUY could prove to be the right course of action for multiple reasons. First, if the U.S. economy dodges a recession, consumer cyclical stocks are likely to rally. Second, GBUY is levered to exciting trends and changes in consumer spending. Finally, if deflation takes shape, the bulk of GBUY’s lineup is poised to benefit.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.