The first quarter was rather turbulent. But given the unexpected burst of inflation and the savage Russian invasion of the Ukraine, the final price reading of the S&P 500 of -5.2% comes almost as a relief. A late rally in March mitigated the overall damage
The ETF reports on ValuEngine that follow market benchmarks provide a side benefit in writing market analyses. They are a window to implicit forecasts for 3-, 6- and 12-month forecasts VE models are making for each benchmark’s ETF portfolio. This is because the ratings and projections combine bottom-up constituent analysis with analyses of the historical price movements of the ETF in different market environments.
Financial Advisory Services based on ValuEngine research available: www.ValuEngineCapital.com
The benchmark indexes and ETFs chosen for this feature are:
- The S&P 500 Index representing US Large Cap; the ETF is iShares’ SPY
- The S&P 400 MidCap Index representing US MidCap; the ETF is SPDR’s MDY;
- The Russell 2000 Index representing US Small Cap; the ETF is iShares’ IWM;
- The Russell 1000 Large Cap Growth Index; the ETF is iShares’ IWF;
- The Russell 1000 Large Cap Value Index; the ETF is iShares’ IWD;
- The Nasdaq-100, constructed as an index using the top 100 non-financial stocks with primary listing on the Nasdaq, but now regarded as the premier US Big Tech Index; the ETF is Invesco QQQ.
Current ValuEngine reports on these ETF’s can be viewed HERE
Today’s focus is primarily on the 6-month period that will end on September 30, 2022. On the chart that is listed as the ValuEngine forecast for 6-Mo indicating the next 6 months. The data in the summary table are all from April 1, 2022, the last trading date of the quarter that just finished.
| MDY | IWM | IWF | IWD | QQQ | SPY | |
| Market Index Being Tracked | S&P Midcap | Russell 2000 Small Cap | Russell Large Cap Growth | Russell Large Cap Value | Nasdaq 100 | S&P 500 |
| ValuEngine Rating | 3 | 4 | 3 | 2 | 3 | 3 |
| VE Forecast 3-mo. Price Return | 0.5% | 0.5% | 1.3% | 0.4% | 1.2% | 1.1% |
| VE Forecast 6-Mo. Price Return | 1.0% | 1.2% | 2.4% | 1.4% | 2.3%% | 2.1% |
| VE Forecast 1-yr. Price Return | -3.2% | -2.5% | -3.3% | -6.2% | -3.7% | -3.9% |
| Historic 3 mo. Price Return | -4.9% | -7.9`% | -9.6% | -1.1% | -9.9% | -5.2% |
| Historic 6 mo. Price Return | 1.0% | -6.6% | 0.5% | 5.1% | 0.5% | 4.3% |
| Historic 1-Yr. Price Return | 2.4% | -7.2% | 12.7% | 9.0% | 11.5% | 13.1% |
| Historic 5-Yr Ann. Price Return | 9.0% | 8.0% | 17.8% | 7.4% | 20.2% | 13.0% |
| Volatility | 19.6% | 21.7% | 16.4% | 16.9% | 17.0% | 15.9% |
| Sharpe Ratio (3-Year) | 0.45 | 0.37 | 1.03 | 0.43 | 1.13 | 0.82 |
| Beta | 1.17 | 1.20 | 1.04 | 1.01 | 1.04 | 1.00 |
| # of Stocks | 400 | 2000 | 498 | 850 | 100 | 500 |
| Undervalued by VE %* | 55% | 70% | 52% | 47% | 51% | 35% |
| P/B Ratio | 2.6 | 2.3 | 13.2 | 2.7 | 9.3 | 4.7 |
| P/E Ratio | 20.4 | 65.5 | 39.8 | 21.5 | 34.1 | 24.5 |
| Div. Yield | 1.1% | 1.0% | 0.5% | 1.7% | 0.5% | 1.3% |
| Expense Ratio | 0.23% | 0.19% | 0.19% | 0.19% | 0.20% | 0.09% |
| Largest Holding
% of fund VE Rating |
TRGP
.7% VE 2 |
OVV
.5%, VE 1 |
AAPL
12.5% VE 3 |
JNJ
2.2% VE 2 |
AAPL
12.5% VE 3 |
AAPL
7.1% VE 3 |
| Index Provider | S&P Dow Jones | FTSE Russell Indices | FTSE Russell Indices | FTSE Russell Indices | Nasdaq | S&P Dow Jones |
| Index
Scheme |
Mkt. Cap Weighting | Mkt. Cap Weighting | Mkt. Cap Weighting | Mkt. Cap Weighting | Mkt. Cap Weighting | Mkt. Cap Weighting |
| ETF Sponsor | SPDRs by SSgA | iShares by Blackrock | iShares by Blackrock | iShares by Blackrock | Invesco | SPDRs by SSgA |
All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 500 ETFs have been updated on www.ValuEngine.com
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In order to frame our forecasts, let’s look at the ValuEngine ranking which summarizes the models’ views on the expected price appreciation of SPY, the SPDR (“spider”) based on the S&P 500 Index. Given its bellwether status as the market’s proxy, a rating of 3 is the norm for SPY. The ValuEngine market forecasts for SPY – and thus the S&P 500 – will vary from negative to positive depending on our models’ assessments of the current environment and the individual stock analysis of each component of the index.
Focusing on the S&P 500 column in the three rows containing our forecasts, our models expect the market to navigate the next three-to-six months in modestly positive territory. However, with a 12-month forecast of close to -4%, even with a six-month 2% gain, our models forecast a mild correction during the next 12 months.
Are there segments of the market for which the ValuEngine models have a more positive outlook? The models predict one reversal of historic trends. Although SPY, the large cap S&P 500 ETF has outperformed IWM, the small cap Russell 2000 ETF, consistently and decisively during the past 5 years, IWM is the only one of the six benchmark ETFs in this analysis that receives an above average rating of 4 (buy).
Another interesting change is that AMC Entertainment (AMC), formerly the highest weighted position in IWM, has fallen to second while Ovintiv (OVV), which was not in the top five at year end, is now the small cap index’s largest position. This reflects the relative outperformance of energy sector stocks in the past few quarters. Another attractive feature of IWM is that we rate 70% of IWM’s holdings as undervalued, much higher than the 55% in MDY. Finally, at a time when many strategists are predicting major declines for QQQ as a result of its high concentration in the five largest technology stocks with 61% or its overall weight in technology, there are no such worries with IWM. Less than 14% of its weight is in technology and the top 10 holdings comprise just 3.7% of the overall portfolio. In contrast, AAPL and MSFT comprise 22.6% of QQQ, more than five times as much concentration in magnitude.
Financial Advisory Services based on ValuEngine research available: www.ValuEngineCapital.com
No matter which of the major six benchmark categories you choose, the differences are not huge in the scheme of long-term returns. Overall, our models say you are likely to enjoy slightly positive returns during the next six months before another minor correction of 5% – 8% between October 1, 2022 – March 31, 2023. These are guidelines as no models can predict 12 months ahead with that kind of exact precision. As usual, time will tell. The results should be used comparatively, meaning which index the data driven ValuEngine models find most attractive versus most unattractive.
By Herbert Blank
Senior Quantitative Analyst, ValuEngine Inc
support@ValuEngine.com
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