Low Vol And Momentum Top US Equity Factor Returns In 2019

US stocks have been whipsawed this year, but looking through the recent noise shows that all the major equity factors continue to post solid gains, based on a set of exchange-traded funds. The leading performers, however, are enjoying outsized gains that are far ahead of the relative laggards.

The low volatility factor is currently on top via iShares Minimum Volatility USA (USMV), which is up 24.3% so far in 2019 through yesterday’s close (Sep. 5). The latest buying spree lifted the fund to a record high.

The momentum factor’s gain is a close second. The iShares USA Momentum Factor (MTUM) is up 23.8% year to date. The ETF is just a fraction below its all-time high that was set in July.

Notably, both funds have outperformed the broad market so far in 2019, based on the SPDR S&P 500 (SPY), which is ahead 20.3% year to date.

Even the laggards in the factor universe are posting respectable gains. The weakest performer so far in 2019 is small-cap value stocks: iShares S&P Small-Cap 600 Value (IJS) is ahead by 11.3%.

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Note, however, that while IJS enjoys a decent return this year, the trend looks weak for the ETF. Consider, for instance, that the fund’s 50-day moving average remains below its 200-day counterpart, which suggests a downside bias may be lurking.

Alternatively, one might wonder if IJS’s relatively soft performance a contrarian buying opportunity for the longer haul? Maybe, but Chad Morganlander, portfolio manager at Washington Crossing Advisors, isn’t impressed. “Large cap is where one would overweight, and that’s where we’re overweight in our portfolio,” he tells CNBC.

When we look at the small-caps sector, and you take an X-ray of small caps, the financial sector has a large exposure to that index, as well as industrials…. Because of the flattening yield curve, we think financials are going to underperform. The global growth backdrop doesn’t look all that great, hence the reason why we’d continue to be underweight industrials.

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By James Picerno