A strategy of holding stocks that have been on an upswing has outperformed the S&P 500 over the long term.
Low-volatility strategies have worked well for investors this year as the Federal Reserve has raised interest rates to clamp down on inflation. But for the long term, having some money in a strategy that tracks price momentum can make your portfolio more flexible and generate higher returns.
Investors are looking ahead to the end of the major trend of 2022 — rising interest rates, which halted the liquidity-driven bull market and pushed people away from stocks. So far this year, lower-volatility strategies have held up better than the benchmark S&P 500 SPX . But Kalivas suggests caution: “The market may be too willing to embrace the notion that we will revert to a low-inflation environment,” he said, referring to the November Consumer Price Index report.
Aside from 2022, when the low-volatility strategy has been the best performer, the Invesco S&P 500 Momentum ETF SPMO has outperformed for all periods on the table. FactSet also says SPMO “can produce major biases” to the market sectors that have been the best recent performers. All of this means 29% of the fund’s portfolio is now in the energy sector, according to Invesco. But you might be surprised that health-care stocks make up 31% of SPMO’s holdings. The fund’s top holding is Exxon Mobil Corp. XOM , which makes up 9% of the portfolio.
But he also emphasized that SPMO will react to price momentum regardless of which sectors are favored by investors.
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