The ETF reports on ValuEngine for funds that follow market benchmarks provide a side benefit in writing market analyses. They allow me to discuss the implicit forecast for 1-, 3-, 6- and 12-month forecasts our 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.
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The benchmark indexes chosen for this feature are:
- The S&P 500 Index representing US Large Cap;
- The S&P 400 MidCap Index representing US MidCap;
- The Russell 2000 Index representing US Small Cap;
- 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 CRSP US Total Market Index, an all-cap index used by Vanguard to represent the entire US stock market.
This summary table contains all five indexes and ETFs that hold them. It also includes historical, valuation and informational data for reference.
| IVV | MDY | IWM | QQQ | VTI | |
| Market Index Being Tracked | S&P 500 | S&P Midcap | Russell 2000 Small Cap | Nasdaq 100 | CRSP US Total Market Index. |
| ValuEngine Rating | 3 | 2 | 4 | 4 | 3 |
| VE Forecast 1-mo. Price Return | -0.4% | -0.4% | -0.4% | -0.3% | -0.4% |
| VE Forecast 3-mo. Price Return | 0.9% | 0% | 0.4% | 1.5% | 0.9% |
| VE Forecast 6-Mo. Price Return | 2.9% | 0.8% | 1.4% | 4.1% | 2.8% |
| VE Forecast 1-yr. Price Return | -5.0% | -5.7% | -4.2% | -3.9% | -4.9% |
| Historic 6 mo. Price Return | 15.7% | 17.7% | 16.7% | 12.9% | 15.4% |
| Historic 1-Yr. Price Return | 38.9% | 55.5% | 65.4% | 42.0% | 43.0% |
| Historic 5-Yr Ann. Price Return | 13.9% | 12.1% | 13.5% | 22.2% | 14.2% |
| Volatility | 15.2% | 19.6% | 21.4% | 16.9% | 15.8% |
| Sharpe Ratio (3-Year) | 0.91 | 0.62 | 0.63 | 1.33 | 0.90 |
| Beta | 1.00 | 1.22 | 1.27 | 1.01 | 1.05 |
| Alpha | 0.00 | 0.04 | 0.07 | 0.03 | 0.01 |
| # of Stocks | 500 | 400 | 2000 | 100 | 3753 |
| Undervalued by VE %* | 29% | 36% | 53% | 24% | 54% |
| P/B Ratio | 4.3x | 2.7x | 2.8x | 2.8x | 4.3x |
| P/E Ratio | 30.3x | 19.8x | NMF | 45.4x | 46.9 |
| P/S Ratio | 4.2x | 2.6x | 7.9x | 15.2x | 4.3x |
| Div. Yield | 1.3% | 0.9% | 0.8% | 0.5% | 1.4% |
| Expense Ratio | 0.03% | 0.23% | 0.19% | 0.20% | 0.03% |
| Index Provider | S&P Dow Jones | S&P Dow Jones | FTSE Russell Indices | Nasdaq | CRSP |
| Index
Scheme |
Mkt. Cap Weighting | Mkt. Cap Weighting | Mkt. Cap Weighting | Mkt. Cap Weighting | Mkt. Cap Weighting |
| ETF Sponsor | iShares by Blackrock | SPDRs | iShares by Blackrock | Invesco | Vanguard |
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Most market forecasts are made on the S&P 500 Index. Therefore, all four forecast numbers appear in bold. Although all four time periods are frequently referenced, investment industry publishers that keep “scorecards” of strategists’ forecasts generally focus most on six-month forecast, so that row also has bolded numbers for emphasis.
In order to frame our forecasts, let’s look at the ValuEngine ranking summarizing our models’ views on the overall attractiveness of each ETF holding these indexes. As one might expect, IVV, holding the S&P 500, and VTI holding virtually the entire US stock market, both get ValuEngine Average ratings of 3. The other three indexes, each specializing in one particular market segment, do not. The midcap ETF MDY has a below average rating of 2. Big-Tech standard bearer QQQ and Small Cap IWM both get above average ratings of 4.
Focusing on the S&P 500 column in the four rows containing our forecasts, our models expect the market to navigate choppily from a mildly down month of July to a relatively flat 3rd quarter but ending December with the last six months in positive territory with a gain of nearly 3%. However, with a 12-month forecast of -5%, even after that 3% gain, our models right now are forecasting a bit below -7% for the first six months of 2022. We will update you on those forecasts at the end of September and the end of December using this same framework.
What about the other indexes? Since about 80% of VTI’s weight is represented by the S&P 500, any differences between the two tend to be subtle. Given the ValuEngine ratings, it is not surprising that QQQ is projected to outperform IVV and VTI in the next 6 months. While QQQ is also predicted to fall significantly in the first 6 months of 2022, it is projected to incur less of a loss for the 12-month period than the S&P 500. The MidCap MDY is projected to be the worst performer of the 5 ETFs in the next 3, 6 and 12 months. Given that in the past 25 years since it started being recognized as a separate and distinct segment from large cap and small cap, it has generally outperformed both. However, timing in the markets is everything and according to our models, the next 12 months will be a subpar time for the midcap index.
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Interestingly, the model projects that the small cap Russell 2000 as represented by IWM will not keep pace with the S&P 500 in the next six months but will not fall as badly as the large cap index in the subsequent six months. The relative buoyancy of IWM may be a result of 53% of the small cap stocks in the Russell 2000 being considered undervalued by the market while only 29% of the S&P 500 constituents’ merit undervalued tags.
The bottom line is that the model is predicting choppy but mildly positive returns for the next 6 months. Although many strategists are looking for a crash to occur this year, our ETF models indicate that if a precipitous correction occurs, it will probably wait until next year to do most of its damage.
By Herb Blank
ValuEngine, Inc
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