While others worry about further downside risks, ETF investors should also position for potential upside risks, like chasing overpriced areas of the market.
“From my lens, Financial and Technology stocks seem unconvinced the economy’s about to rapidly shift into sustainably higher gears. Until it does, I’m staying committed to cyclical growth,” Talley Léger, Investment Strategist for the Global Thought Leadership Invesco team, said in a research note.
Léger explained that market catalysts like a potential Covid-19 treatment, calming volatility toward the end of the year, and seasonal bullish trends like the “January effect” could also support a shift in the market winds.
In the type of environment ahead, investors should consider more attractively priced areas of the market after the run up in growth and momentum stocks this year, notably those found in the information technology and internet-related segments.
Alternatively, Léger highlighted some cyclical sectors that investors should consider shifting into.
“For price-conscious investors, it might be more palatable — and maybe just as effective — to consider participating in this prolonged, low-altitude recovery and cyclical advance through the Industrial and Material sectors,” he added.
ETF investors have a number of options to capture these market segments. For example, the Invesco S&P 500 Equal Weight Industrials ETF (RGI) is based on the S&P 500 Equal Weight Industrials Index. The Index equally weights stocks in the industrials sector of the S&P 500 Index.
The Invesco DWA Industrials Momentum ETF (PRN) tracks the Dorsey Wright Industrials Technical Leaders Index, which is designed to identify companies that are showing relative strength (momentum), and is composed of at least 30 securities from the NASDAQ US Benchmark Index. Relative strength is the measurement of a security’s performance in a given universe over time as compared to the performance of all other securities in that universe.
The Invesco S&P 500 Equal Weight Materials ETF (RTM) is based on the S&P 500® Equal Weight Materials Index. The Index equally weights stocks in the materials sector of the S&P 500 Index.
Finally, the Invesco DWA Basic Materials Momentum ETF (PYZ) is based on the Dorsey Wright Basic Materials Technical Leaders Index, which is designed to identify companies that are showing relative strength (momentum), and is composed of at least 30 securities from the NASDAQ US Benchmark Index.
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