The Materials ETF has avoided the financial headlines and quietly assumed the market’s sector leadership. It has more than doubled the performance of the S&P 500 over the past year, suggesting some sustainability of the move. Latin America returns to the top of the global rankings after a 10-week absence.

Sectors: Materials climbed two places higher to assume the sector leadership role. Even though Materials has been in the top half of the rankings for all but one of the past 15 weeks, most investors have overlooked its strength. Its relative strength dates back a full year, as the Vanguard Materials ETF (VAW) has surged 49%, more than doubling the 24% return of the SPDR S&P 500 ETF (SPY). The dethroned Financials sector is now in second place, following its 10-week reign at the top. Technology also climbed a notch, helping to push Telecom from second down to fourth. In the lower half, Real Estate and Energy swapped places, and Consumer Staples climbed off the bottom. The defensive sectors are still huddled at the lower extremity, with Utilities and Health Care each slipping lower. The Vanguard Health Care ETF (VHT) has been unable to establish a new high in the past 16 months, has lost about 7% of its value in the past six months, and is now the only one of our sector benchmark ETFs registering negative momentum.

Factors: For the second week in a row, all but two of the factor benchmark ETFs posted momentum declines. Growth and Momentum were the two exceptions this week, although they both remain low in the relative-strength rankings. None of the top five factors has budged from their positions for six consecutive weeks. High Beta has been the only occupant of the #1 slot since the introduction of the Factor Edge 14 weeks ago. Growth was the only factor to climb in the rankings this week, moving from 10th to seventh. Its rise pushed Quality, Momentum, and Low Volatility all lower, while Yield remains on the bottom.

Global: Latin America returns to the top of the heap. It held that position 11 weeks ago, but the post-election leadership shift temporarily sent it all the way to the bottom. Apparently, much of the previous selling was a knee-jerk reaction that has now reversed itself. Strength in the Materials sector is also playing a role, as the other two resource-rich categories of Canada and Pacific ex-Japan are ranked second and fourth, respectively. Emerging Markets ascended three spots thanks to the extra pull from Latin America. The U.S. slipped again, this week falling two places to eighth. Even though market participants are celebrating Dow 20,000 today, most markets outside the U.S. are performing even better. Japan fell one spot lower, replacing China on the bottom. However, Japan is still posting a double-digit momentum score, so it is not in trouble—it is just lagging that of the rest of the world. Currency swings have been a big contributor to the performance of the iShares MSCI Japan ETF (EWJ), and for the past five months, those contributions have been primarily negative ones.


Disclosure: Author has no positions in any of the securities mentioned and no positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned.