This Quant ETF Is Set to Surge Higher

Clint Lee

3 years ago

If there’s anything that 2021 has shown us, it’s that being nimble is the path to profits.

Just look at the chart below. It’s a ratio of the iShares Russell 1000 Value ETF (NYSE: IWD) compared to the iShares Russell 1000 Growth ETF (NYSE: IWF).

If the line is rising, value is doing well. If the line is falling, then growth is outperforming. Here’s the roller coaster so far:

(Click here to view larger image.)

At the start of the year, value surged out of the gate. Expectations of strong economic growth led to the “reflation” trade, which boosted value-oriented stocks.

Now, concerns over the delta variant and a Federal Reserve that is “talking about talking about” ending stimulus is putting the brakes on reflation. Concerns over a cooling economy is also boosting growth stocks, such as technology, once again.

So, how do you know where to place your bets?

If this trading environment is frustrating you, then seek inspiration from one of the most successful investors of the modern era.

A Strategy That Automatically Adjusts

Famed 1990s investor Peter Lynch racked up an impressive record as manager of the famed Fidelity Magellan Fund. Between 1977 and 1990, he averaged a 29.2% annual return … more than doubling the S&P 500 Index.

He wasn’t a growth or value investor. Rather, he was described as a chameleon. He had an uncanny ability to adapt to changing market environments.

In this era of economic uncertainty and quick changes in stock market leadership, the ability to adapt will serve you well.

One way is to use a factor-based approach rooted in quantitative algorithms (that’s what I do for subscribers to my Flashpoint Fortunes, and so far, we’re beating the S&P 500 by a factor of 14 on closed positions). They (I) do the heavy work by ranking the best stock opportunities on a number of metrics that can help you stay ahead and adapt to what’s working.

Take momentum for example. The strategy had become synonymous with growth stocks in 2020. But a good momentum strategy should reshuffle its holdings to pick up stocks with the best trailing gains.

Need proof that a momentum portfolio can quickly change its composition?

On a recent reshuffle, the iShares MSCI USA Momentum Factor ETF (NYSE: MTUM) saw 68% of its portfolio change holdings.

Here’s why now is the right time to scoop up shares in momentum.

The Next Move Higher

MTUM’s changing portfolio composition is about to pay off. That’s because it’s carving out a textbook continuation pattern on the price chart and is on the verge of breaking out over resistance. You can see that in the chart below.