The bull run that the U.S. market enjoyed in the first half of the year is likely to continue on improving job and inflation data. The Debt ceiling and other D.C. issues may hold back the winning ways for a while.
Needless to say, all eyes were on QE “tapering” of late, but the speculation about partial trimming ended with a surprising decision by the Fed to continue with the $85-billion monthly bond-buying program until the economy gains more strength.
While on one hand, the news perked up the stock market, on the other, a modest downgrade to the Fed’s GDP outlook for this year and 2014 indicates that investing can be a bit risky in the near term, suggesting investors to tap any space with caution. It is worth noting that the degree of the index movement depends heavily on its weighting methodology.
For instance, a market capitalization weighted index is more susceptible to a decline in companies that are large caps than in companies with a higher fundamental weight such as revenues or earnings. Hence, while cap-weighted counterparts are certainly good options, a play that spreads out assets more could be warranted by looking at the often forgotten ‘Equal Weight ETFs’.
The best part of the equal-weight fund is that it keeps the portfolio free from concentration risk. Moreover, thanks to rebalancing every quarter, such funds easily get to avoid the overvalued segments and reinvest in those that are underperforming, thereby clinching potential gains in outperforming stocks.
Given this bullish trend, and the positive environment for smaller cap securities, a look at some of the top ranked ETFs in the space could be a good way to target the best of the segment. In order to do this, investors can look at the Zacks ETF Rank and find the top Equal-Weight ETF (Read: Overweight These Equal Weight ETFs in Your Portfolio).
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box or asset class. Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive one of three risk ratings, namely Low, Medium or High.
The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of the five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other products with a similar level of risk.