JP Morgan: Rotation From Momentum to Value Can Run for Some Time

As the stock market continues to reach record highs, global investment firm JP Morgan still sees the movement to value-oriented equities from momentum-based equities to run for some time. It’s already been going on for four months and could go on for another four or even more, according to JP Morgan.

“Currently, we estimate that 42% of potential rotation has been realized,” said J.P. Morgan’s chief U.S. equity strategist, Dubravko Lakos-Bujas. “As data prints improve, the re-acceleration of the business cycle will be more evident and should lead to greater risk appetite.”

Since September, the movement to value stocks has been persistent and is spilling over into the early goings of 2020. The rotation could still continue, especially with the central bank easing monetary policy as evidenced by three rate cuts in 2019.

“Global cyclical upturn has legs and is not fragile as feared by many,” Lakos-Bujas said. “The change in trajectory of global monetary policy and central bank balance sheet growth will be a powerful driver of a new intra-cycle recovery.”

Where to Look for Value

One ETF option is the Deep Value ETF (NYSE: DVP), which seeks to track the price and total return performance of the Deep Value Index. The index is composed of the common stock of typically 20 companies included in the S&P 500 that have been selected through a proprietary ranking system developed by the fund’s index provider, that evaluates the earnings and cash flows of each company to create a final universe of companies that are deeply undervalued as compared to the S&P 500 overall.

Investors can also look to the iShares Edge MSCI USA Value Factor ETF (BATS: VLUE). VLUE seeks to track the investment results of the MSCI USA Enhanced Value Index composed of U.S. large- and mid-capitalization stocks with value characteristics and relatively lower valuations.

VLUE generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents. The index is based on a traditional market capitalization-weighted parent index, the MSCI USA Index (the “parent index”), which includes U.S. large- and mid- capitalization stocks.

Finally, another option is the Vanguard Value Index Fund ETF Shares (NYSEArca: VTV). VTV seeks to track the performance of a benchmark index that measures the investment return of large-capitalization value stocks.

For more market trends, visit ETF Trends.