Since last month’s issue, we’ve seen continued volatility in the U.S. equity markets.
Trading volume was among the slowest this year; according to Dow Jones Market Data Group, the typical daily volume in the New York Stock Exchange is close to 5 billion. However, this year, it has been around 4 billion.

The second-quarter earning session is just around the corner. Investors are eager to see how companies are contending with soaring inflation and other factors, including the U.S. labor market participation.

Cabot ETF Strategist Issue: July 12, 2022

Since last month’s issue, we’ve seen continued volatility in the U.S. equity markets.

Trading volume was among the slowest this year; according to Dow Jones Market Data Group, the typical daily volume in the New York Stock Exchange is close to 5 billion. However, this year, it has been around 4 billion.

Second-quarter earnings season is just around the corner. Investors are eager to see how companies are contending with soaring inflation and other factors, including the U.S. labor market participation.

U.S. job growth numbers came in strong for the month of June, accelerating faster than expected. According to the Bureau of Labor Statistics, Non-farm payrolls increased by 372,000 in the month, better than the 250,000 Dow Jones estimate and continuing a strong trend. Investors took Friday’s better-than-expected jobs data as a sign that the Federal Reserve will remain resolute in its plans to raise interest rates aggressively.

Undiscovered Portfolio

The Undiscovered Portfolio, which consists of smaller or less well-known funds, is diversified with ETFs representing various asset classes currently performing well on a technical basis.

This portfolio has participated nicely in the recent short-term market rally. In last week’s update, we added one new trade, SBIO.

This week, we are selling the Invesco S&P Small Cap Energy ETF (PSCE) and replacing it with the Renaissance IPO ETF (IPO).

The current allocations are now:

• DJD: 40%
• BTAL: 30%
• SBIO:20%
• IPO:10%

Invesco Dow Jones Industrial Average Dividend ETF (DJD)
DJD is a blue-chip, high-dividend-yield ETF that tracks the Dow 30 stocks but is weighted by their dividend yield. This gives us some solid large-cap exposure, and reshuffles the Dow’s significant sector biases.

Invesco manages DJD, and this fund has amassed over $216.42 million in assets, which makes it one of the average-sized ETFs within the Large Cap Blend style box.

The annual operating expenses for DJD are 0.07%, making it one of the least expensive products in the space, and the fund has a 12-month trailing dividend yield of 3.01%.

AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL)
BTAL is an actively managed fund that takes a long position in low-beta U.S. stocks and offsets this with a short position in high-beta domestic stocks.

This strategy has the potential to generate positive returns regardless of the direction of the stock market, as long as low-beta stocks outperform their high-beta counterparts.

This beta fund has assets of $187.98 million under management, and an expense ratio of 2.53%. It has a YTD return of 18.34%.

It has dipped a bit in our portfolio but acts as a potential hedge should the broad market resume its six-month downtrend.

ALPS Medical Breakthroughs ETF (SBIO)
Our purchase from last week is off to a flying start as consolidation talk consumes the biotech industry. SBIO invests in biotech companies with drugs in Phases II and III of U.S. FDA clinical trials. It also screens for sustainability, meaning constituent firms have enough cash to last two years.

SBIO has notched a double-digit rally so far in July, on positive trial data and industry merger and acquisition news. Small- and mid-cap biotech companies outperformed large-cap biotechs on positive drug-trial data for companies focused on immunotherapy.

SBIO has an AUM of $99.14 million and an expense ratio of 0.50%.

We have one new trade this week

After a strong bounce this week, we are exiting PSCE, our oil holding.

Renaissance IPO ETF (IPO)
The PSCE exit makes room for a unique ETF whose symbol tells you exactly what its theme is.

The IPO ETF is a broad basket of recent initial public offerings. This ETF offers access to the newest publicly traded stocks. It adds a new company to its basket within 90 days of its listing and removes a firm after two years of public trading. Airbnb (ABNB), Snowflake (SNOW), Datadog (DDOG), and DoorDash (DASH) are among the most heavily weighted components.

IPO has an AUM of $194.60 million and an expense ratio of 0.60%.

This ETF has been underperforming the S&P 500 by around 50%, but we’d anticipate it recovering strongly if the current rally gets some “legs” deeper into summer.

The next Cabot ETF Strategist issue will be published on August 9, 2022.

About the Analyst

Kate Stalter

A Series 65-licensed asset manager, with more than two decades of experience in various areas of financial services. As an investment advisor and financial planner, Kate personally manages client portfolios, with a focus on successful retirement, including asset allocation, income generation and tax strategies.

Kate also serves as a capital-markets contributor at Forbes.com, and is an expert columnist for the investment advisory channel at U.S. News & World Report.

She served as trading instructor and market commentator for Investor’s Business Daily, and launched the “Small Cap Roundup” radio show and stock newsletter for Tiger Financial News Network. Kate hosted the “Daily Guru” podcast for MoneyShow, while also serving as a MoneyShow market columnist and video host.

She currently owns registered investment advisory firm ProsperitySource Advisors, which focuses on broad allocation strategies, incorporating global equity and fixed-income asset classes and all market capitalizations.