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Time for High Beta & Momentum ETFs?

Sanghamitra Saha
Navient (NAVI) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

Wall Street turned around on Nov 16, recovering from its recent weakness. Passage of a tax bill by the House and earnings-induced gains in Wal-Mart WMT and Cisco CSCO are deemed to the key drivers, per Reuters. Wal-Mart jumped about 11% to a record high “after reporting its strongest U.S. revenue growth since 2009 and soaring online sales.” Cisco surpassed its “highest level since February 2001” (read: ETFs Set to Surge as Cisco Sees Revenue Growth in 2 Years).

Another big development that fueled the Wall Street rally was the passing of House Republicans’ tax plan in a 227-205 vote. This will cut the corporate tax rate, reduce burden for most individuals and add ‘an estimated $1.4 trillion to the federal deficit over the next decade’. The Senate is discussing its own version of the plan, wherein the Republicans hold thin majority. So, it is still unclear if the chamber will have sufficient votes to pass it.

The Senate plan also deviates from the House bill on some grounds. The Senate now wants to defer the corporate tax-rate cut by a year. It also intends to repeal a main provision of the Obamacare law — “saving the government $318 billion over 10 years to help pay for the tax cuts, but leaving 13 million Americans uninsured by 2027, according to official estimates” (read: Value ETFs & Stocks to Buy on Tax Cut Delay Concerns).

Though there are hurdles on the road to cutting the tax, investors can join the new-found optimism in the market and play high beta and momentum ETFs as long as the trend is alive.  

Below we highlight a few high beta and momentum ETFs that investors may consider.

High Beta ETFs

Beta is directly related to market movement. Notably, high beta funds tend to rise or fall more than the stock market and are thus more volatile. When markets soar, high beta funds experience larger gains than the broader market counterparts and thus, outpace their rivals.

PowerShares S&P 500 High Beta Portfolio SPHB

This fund tracks the performance of 99 stocks from the S&P 500 index with the highest realized volatility over the past 12 months. The fund charges 25 bps in fees.

Elkhorn Lunt Low Vol/High Beta Tactical ETF LVHB

The fund is based on the Lunt Capital US Large Cap Equity Rotation Index, which looks to switch between low-volatility and high beta stocks in the S&P 500 cohort. The strategy looks to attain alpha created by the huge dispersion between low volatility and high beta stocks. The fund charges 49 bps in fees.

High Momentum ETFs

Momentum investing might be an intriguing idea for those seeking higher returns in a short spell.

Fidelity Momentum Factor ETF FDMO

The Fidelity U.S. Momentum Factor Index reflects the performance of stocks of large and mid-capitalization U.S. companies that “exhibit positive momentum signals.” It charges 29 bps in fees.

iShares Edge MSCI USA Momentum Factor ETF MTUM

This ETF seeks to track the performance of large and mid-cap U.S. stocks exhibiting relatively higher momentum characteristics. The fund charges 15 bps in fees (see all large-cap ETFs here).

PowerShares DWA Momentum ETF PDP

The fund looks to track the Dorsey Wright Technical Leaders Index. The fund charges 63 bps in fees.

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Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report
ISHRS-MSCI US M (MTUM): ETF Research Reports
FID-MOM FACTOR (FDMO): ETF Research Reports
POWERSH-SP5 HBP (SPHB): ETF Research Reports
PWRSH-DWA MO PO (PDP): ETF Research Reports
ELKHN-LUNT LVHB (LVHB): ETF Research Reports
Wal-Mart Stores, Inc. (WMT) : Free Stock Analysis Report
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