Are we seeing the soft landing markets wanted? That’s the question that’s prompting a tech stock rally to start the year, with disruptive innovation-type strategies benefitting from investors in a buy low mood. But such a rally could be “fool’s gold” according to Richard Bernstein, CEO of Richard Bernstein Advisors (RBA). If so, it could instead be worth taking a good look at a macro-driven, top-down fundamentals ETF like the iMGP RBA Responsible Global Allocation ETF (IRBA).
What’s behind Bernstein’s assessment of the “fool’s gold” situation in tech that he identified in a recent webcast? A key point from RBA’s research, which asserts that most of the time it’s better to be “six months late rather than six months early” when it comes to equity markets, as the most difficult times in the market tend to come at the bottom.
Investors may feel like recent signs the U.S. economy might avoid a recession are cause to look for cheap deals. But according to further research from RBA, cheap doesn’t always make a bargain, and one should be careful not to equate big price drops with value. The firms that had some of the biggest declines in one year tended to underperform the market notably not just for the following year, but for the following decade.
A fundamentals ETF like IRBA takes a different approach, letting the profits cycle inform how it invests rather than engaging in bottom-up stock picking just because things “look” good to buy low. IRBA uses a go-anywhere approach, investing in other ETFs to express the viewpoint of the RBA investment philosophy and process, which considers three key factors in profits, liquidity, and sentiment.
Actively managed, IRBA expects a target allocation of 65% for equities and 35% to fixed income over ten years, adding an ESG overlay to the RBA method. IRBA charges 69 basis points and has outperformed its ETF Database Category Average and its Factset Segment Average over the last three months, returning 8.2% compared to 5.1% and 3.2% respectively.
There are a lot of outstanding questions in the U.S. economy right now, from the Fed’s rate hikes to whether a recession will happen. IRBA’s dedication to fundamentals and the profits cycle make it a very interesting strategy to watch in the weeks ahead for investors unconvinced by a “fool’s gold” rally.
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