“It may surprise investors that the quality factor has become highly correlated to the momentum factor, given that, historically, this has not often been the case. The momentum factor isolates on stocks that have delivered recent winning performance, especially relative to other stocks that may have recently posted lackluster or negative returns. With quality stocks having performed so well over the past few years, they have become some of the market’s momentum stocks,” the Oppenheimer strategists said.
Investors interested in riding on the ongoing strength in the quality segment may turn to factor-specific ETF plays, such as the Oppenheimer Russell 1000 Quality Factor ETF (OQAL), which bets on higher quality companies in the hopes that they perform better than lower-quality companies.
Additionally, investors are not limited to only selecting one market factor when building a diversified investment portfolio.
“By analyzing each factor’s current fundamental makeup, in addition to its long-term risk and return profiles, we can gain well-rounded insights into the expected investment outcome that any combination of factors in a portfolio might deliver,” the strategists said. “For those looking to employ a strategy that blends factors, today a tilt toward a pro-cyclical factor such as value combined with the momentum factor could potentially offer the flexibility to both participate in an expansionary market and maintain defensive characteristics.”
For example, an investor may consider something like the Oppenheimer Russell 1000 Value Factor ETF (OVLU) that plays on the theme of stocks that appear cheap tend to perform better than stocks that appear expensive. Additionally, one may combine it with the Oppenheimer Russell 1000 Momentum Factor ETF (OMOM), which follows the idea that stocks which rise or fall in price tend to continue rising or falling in price.
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