The U.S. market has completed its five-year bull run trumping all the difficulties from the U.S. government shutdown to the Euro zone debt crisis to emerging market turmoil. The current rally is neither the strongest nor the longest in history, but is considered the fourth longest rally since 1945, as per the S&P Capital IQ.
The S&P 500 index has shown an enormous run, gaining close to 180% from the bear-market bottom reached in March 9, 2009. The strong rally was mainly fueled by the Fed stimulus program, which kept the interest rate at lower levels, and improving global economic conditions (read: 3 Smart Beta ETFs to Beat the Market in 2014).
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The trend is likely to continue as the current bull market enters into its sixth year. The outlook for this year also seems bright as the U.S. economy is improving modestly, corporate profits are at record levels, the job market is healing and consumer confidence is rising. The jobless rate, which climbed to a high of 10% in 2009, plunged to a five-year low of 6.6% in January.
Though the Fed has started to curtail its stimulus program, it has promised to keep interest rates at lower levels until the unemployment rate falls below 6.5%. Inflation level is also low, while a falling budget deficit and recovering housing market are fueling growth in the economy.
The White House expects the U.S. economic growth to pick up speed from 1.7% in 2013 to 3.1% in 2014 and 3.4% in 2015. Given the strong fundamentals, investors still seeking to ride out the continued bull run could consider the following five ETFs (see: all the ETF Categories here).
These ETFs have been the biggest winners as the bull market turns five. These have clearly outpaced the S&P 500 over the past five years and are considered excellent choices to play the broad rally. This is especially true as all five funds have a top Zacks ETF Rank of ‘1’ or ‘2’, suggesting their outperformance may continue in the coming months as well:
This fund provides pure exposure to the small cap value segment of the U.S. equity market by tracking the S&P SmallCap 600 Pure Value Index. Holding 147 securities in its basket, the product is widely spread across a number of securities as each firm holds less than 2% share in the fund (read: How ‘Pure’ ETF Strategies Crushed the Market).
Industrials, consumer discretionary and information technology are the top three sectors that collectively make up for nearly 55% of total assets. The fund has amassed $177.8 million in its asset base while average daily volume is low at nearly 25,000 shares.
The ETF charges 35 bps in annual fees and gained nearly 550% over the past five years. RZV currently has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with High risk outlook.
This ETF tracks the S&P 500 Pure Value Index, which offers pure exposure to the large cap value segment of the U.S. equity market. The fund is widely diversified across 119 securities as none of these make up for more than 2.3% of total assets. From a sector look, the ETF is heavily concentrated toward financials at 26%, while energy (16.14%), and utilities (15.5%) round off the top three spots.
The product has accumulated around $594.5 million in AUM and trades in volume of more than 139,000 shares per day on average. The expense ratio for this fund comes in at 0.35%, while RPV added nearly 535% over the past five years and has a Zacks ETF Rank of 2 or ‘Buy’ with a ‘High’ risk outlook.
This fund follows the Nasdaq Internet Index, giving investors exposure to the largest and most liquid stocks in the broad Internet industry. The ETF holds 79 stocks in its basket with AUM of $416.6 million while charging 60 bps in fees per year. PNQI trades in moderate volume of more than 78,000 shares a day.
In terms of holdings, Facebook (FB) takes the largest share at 10.83%, closely followed by eBay (EBAY) and Google (GOOG) with 8% share each. The fund is tilted toward large cap and growth stocks and consumer discretionary and telecom services take a minor portion in the basket. PNQI was up about 443% over the past five years and has a Zacks ETF Rank of 2 or ‘Buy’ with a ‘High’ risk outlook (read: Facebook to Buy WhatsApp, 3 ETFs to Watch).
This fund provides equal weight exposure to 84 U.S. consumer stocks by tracking the S&P 500 Equal Weight Consumer Discretionary index. The ETF has amassed $105.8 million in its asset base while charging 0.50% in expenses. Volume is light, trading below 26,000 shares a day.
Within the consumer discretionary sector, specialty retail takes the top spot at roughly one-fifth of the total, followed by modest allocations to media, hotel restaurants & leisure, and household durables. Here, large cap and growth stocks take the majority of the allocation. RCD returned over 433% over the past five years and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with High risk outlook.
This fund provides pure exposure to the mid cap value segment of the U.S. equity market by tracking the S&P MidCap 400 Pure Value Index. The fund holds 97 stocks in its basket that are widely spread across components. None of the securities accounts for more than 2.9% of total assets while sector-wise, financials, information technology and industrial take double-digit exposure.
The product is unpopular and relatively illiquid with AUM of just $94.8 million and average daily volume of under 13,000 shares. The ETF charges 36 bps in fees per year from investors and gained about 427% in the five year bull run. RFV currently has a Zacks ETF Rank of 2 or ‘Buy’ rating with Low risk outlook (read: Mid Cap ETFs Leading the Broad Rally).
Based on promising trends and improving job market, it appears that the 2014 bull will continue to rally and celebrate its sixth anniversary next year, making any of the aforementioned ETFs interesting picks once again.
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