Hello! This week’s ETF Wrap spotlights how two ETFs are tactically positioned as they outperform a U.S. stock market grappling with a “dangerous” mix of high inflation and rising interest rates.
High inflation and rising interest rates are a “dangerous” mix for an expensive stock market, according to Meb Faber, chief executive officer of quantitative asset manager Cambria Investment Management.
“Our two tactical models right now are as bearish as they could possibly be,” Faber said by phone. He was referring to the rules-based strategies used by the Cambria Value & Momentum ETF VAMO,
Looking at the holdings of the Cambria Global Momentum ETF, he said that “the vast majority of the portfolio is de-risked and in cash and bond-like instruments,” with a small exposure to natural resources and energy positions and a “value-spread trade into managed futures.”
The Cambria Global Momentum ETF’s holdings as of Sept. 21 included exposure to the iMGP DBi Managed Futures Strategy ETF DBMF,
Meanwhile, the S&P 500 index SPX,
“Usually it looks like a globally diversified fund, but it’s pretty rare for most asset classes to be declining at the same time,” Faber said, pointing to losses in U.S. and international equities as well as declines in bonds and real estate. “There’s really nowhere that’s looking particularly safe other than hanging out in short-term Treasurys and a little bit of the energy complex,” he said.
This year shares of the Cambria Value & Momentum ETF have seen a modest gain of 2.8% through Wednesday, according to FactSet data. The fund, which invests in U.S. stocks and may hedge the portfolio, was down 0.6% Thursday afternoon, FactSet data show, at last check.
The Cambria Value & Momentum ETF holds stocks that are cheaper than the S&P 500, according to Faber, who also serves as Cambria’s chief investment officer. “The value opportunity is one that we think could make an enormous difference for a very long time in equities,” he said.
The Cambria Value & Momentum ETF doesn’t have much small-cap exposure currently, said Faber, adding that its top sector positions include energy, materials and financials, with “a pretty low” allocation to technology.
The U.S. stock market was down Thursday afternoon, extending sharp losses seen Wednesday after the Federal Reserve announced another large interest rate hike of three-quarters of a percentage point while signaling that it will keep aggressively tightening its monetary policy to tame high inflation.
Shares of the SPDR S&P 500 ETF Trust SPY,
The yield on the 10-year Treasury note TMUBMUSD10Y,
Meanwhile, Invesco QQQ Trust QQQ,
As usual, here’s your look at the top and bottom performing ETFs in the past week through Wednesday, according to FactSet data.
| iShares MSCI Brazil ETF EWZ,
| abrdn Physical Silver Shares ETF SIVR,
| iShares Silver Trust SLV,
| iShares Latin America 40 ETF ILF,
| Invesco DB US Dollar Index Bullish Fund UUP,
|Source: FactSet data through Wednesday, Sept. 21, excluding ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater.|
…and the bad
- Carbon Collective Investing announced Sept. 20 the launch of the Carbon Collective Climate Solutions U.S. Equity ETF CCSO,
-2.10%, an actively managed exchange-traded fund that invests in companies dedicated to solving climate change.
- The Newday Sustainable Development Equity ETF SDGS,
-0.81%, an actively-managed fund that invests primarily in companies adhering to one or more of the seventeen United Nations Sustainable Development Goals, began trading last week, according to Newday’s website.
- Strive Asset Management said Sept. 20 that it launched the Strive 500 ETF STRV,
-0.91%to provide diversified exposure to large-cap U.S. companies. The firm will use shareholder engagement to press companies to focus on their mission instead of “someone else’s social agenda,” according to the statement.