No investment category can be on the top all of the time. Changes in relative strength dictate that various sectors, factors, and global regions will come into favor and fall out of favor. High Beta and Small Size are current examples of how the once mighty ETF factors have fallen.
Sectors: Nine of the 11 Sector Benchmark ETFs appear to be pulling their weight, while two are clearly lagging. There is a gentle slope of declining momentum scores for the top nine sectors, followed by an abrupt falloff for Telecom and Energy at the bottom. Energy is once again the only category registering negative momentum, and it finds itself deeper in the red this week. There was a notable upward shift among the defensive sectors this week as Health Care moved two spots higher, Utilities shot four places upward, and Consumer Staples climbed a notch. The sectors falling in relative strength that made room for the defensive sector improvement included Industrials, Materials, and Consumer Discretionary.
Factors: Value is the top factor for a second week, but the rest of the relative-strength lineup for our Factor Benchmark ETFs is mostly a jumble compared to a week ago. Quality jumped three spots higher to claim second place, Low Volatility made a volatile surge from ninth to third, Momentum edged into fifth place, Dividend Growth moved three spots higher, and Yield climbed off the bottom. However, the changes with the biggest impact were the factors that fell in relative strength. High Beta was #1 two weeks ago, and Value knocked it out of first place last week. Today, it sits on the bottom—plunging from first to last in the span of just 14 days. Small Size also fell out of favor, dropping from third to eighth. However, even the lowest-ranked factors are posting healthy momentum scores of 20, making this appear to be the start of a factor rotation as opposed to the onset of a bear market.
Global: Latin America posted losses for the week, significantly reducing its margin over second-place China. It did manage to retain its top ranking among the Global Benchmark ETFs, but the short-term negativity will need to reverse if Latin America is to hold on to the top spot much longer. The U.S. climbed from fifth to third, despite posting a momentum decline. It dislodged the developing-markets trio that had been controlling the top by pushing Emerging Markets downs to fifth. Canada was the big mover among the global categories this week, and, unfortunately, it was all to the downside. Canada plunged from sixth to last and relinquished 20 momentum points in the process. A steep drop in its currency, combined with a decline in the Energy and Materials sectors, sent Canada reeling downward. Japan, which has been the basement dweller off and on for the past six weeks, managed to climb two places higher.
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.