Throughout 2019, talk of slowing global growth spurred talks of a worldwide recession that was backed up further by another reliable recession indicator—an inverted yield curve. However, Ned Davis Research has its own metric called a stock-bond ratio that may be hinting that global growth has actually hit a bottom and a rebound could be ahead.
According to a MarketWatch report, ETF strategist Will Giesdorf “uses a measurement called the “stock-bond ratio:” the S&P 500 divided by the U.S. Long-Term Treasury Bond Index, to confirm the coming recovery, and to offer some selections. As the ratio rises, stocks do better than bonds, and vice versa.”
“The stock/bond ratio has bottomed prior to the economy in each of the last seven global slowdowns,” Geisdorf wrote in an analysis. “Barring an escalation in the trade war, we should see a recovery in early 2020 based on historical lead times.”
According to Geisdorf’s anlaysis, a certain set of ETFs that exhibit high beta compared to the broader market can benefit in the current market environment. Sector wise, industries that may benefit include biotech, health care, and bank—according to a MarketWatch piece on research from Geisdorf.
Here are three funds with the highest sensitivity to the stock-bond ratio:
- VanEck Vectors Oil Services ETF (NYSEArca: OIH): seeks to replicate as closely as possible the price and yield performance of the MVIS® US Listed Oil Services 25 Index. The index includes common stocks and depositary receipts of U.S. exchange-listed companies in the oil services sector. Such companies may include small- and medium-capitalization companies and foreign companies that are listed on a U.S. exchange.
- SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP): seeks to provide investment results that correspond generally to the total return performance of an index derived from the oil and gas exploration and production segment of a U.S. total market composite index. In seeking to track the performance of the S&P Oil & Gas Exploration & Production Select Industry Index, the fund employs a sampling strategy. It generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index. The index represents the oil and gas exploration and production segment of the S&P Total Market Index (S&P TMI).
- ARK Innovation ETF (NYSEArca: ARKK): an actively-managed fund that will invest in domestic and foreign equity securities of companies that are relevant to the fund’s investment theme of disruptive innovation. Its investments in foreign equity securities will be in both developed and emerging markets. It may invest in foreign securities (including investments in American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs) and securities listed on local foreign exchanges.
For more market news, visit ETFTrends.com.