Vermilion ETF Pathfinder: Actionable ETF research & Ideas
BIG PICTURE... see page 2-4• Bullish big picture. Long-term trends still tell a bullish narrative. Sector and Group trends continue to support the risk-on trade, confirmed by this week's breakout in biotechs (XBI, IBB).
• Asset Classes. Overweight equities. No changes here -- equities continue to outperform Treasuries (TLT), and continue to wallop commodities (DBC).
• Large vs. Small Caps. Overweight small caps. The small/large-cap ratio (IWM/IWB), stuck in a YTD decline, is testing a key support level. We still favor small caps, but further weakness will prompt a change.
• Growth vs. Value. Overweight growth. No changes here either -- growth continues to outperform. This is a global theme, and the recent hiccup in FANG stocks failed to dislodge any meaningful trends.
SECTORS & INDUSTRIES... see page 5-12
• Overweights: Financials (XLF), Industrials (XLI), and Tech (XLK).
• Underweights: Defense... Consumer Staples (XLP), Energy (XLE), REITs (XLRE), and Utilities (XLU).
• Health Care: Breaking out from a 2-year base, health care (XLV) reveals dramatic, short-term improvements. Biotechs are providing the latest boost. However, we're still waiting for relative strength to reverse a long-term downtrend before upgrading to overweight.
• Actionable industries: Biotechs (XBI, IBB), Homebuilders (ITB), and Broker-Dealers (IAI).
INTERNATIONAL... see pages 13-14
• Developed vs. EM: Overweight developed. The strengthening duo of Europe (VGK) and Japan (EWJ) creates a compelling overweight. Europe is a YTD leader, and Japan is breaking out. EM contains pockets of strength, but breadth is not as uniform thanks to breakdowns in markets like Brazil (EWZ) & Russia (RSX).
INCOME... see pages 15-17
• Duration. Overweight long-duration. Long-duration treasuries (TLT) continue to outperform both medium-duration (IEF) and aggregate bonds (AGG).
• Geography. Overweight U.S. A shift is underway: the U.S./Int'l and U.S./EM treasury ratios—TLT/BWX and TLT/PCY, respectively—are bullishly inflecting in favor of the U.S.
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Vermilion Research delivers timely, actionable, and unique research inputs to professional investors. Our research strategists highlight securities which we believe are at major inflection points, based on our various proprietary technical indicators, and offer asymmetric risk/return profiles. We believe our research methodology, which is not limited by industry sector or market capitalization, enables us to deliver superior investment recommendations.
Our process begins by organizing all actively traded stocks into coherent sectors, then into logical industry groups. We then apply our proprietary relative strength tools to identify developing price trends. Once attractive trends are identified within a selected sectors or groups, we screen for individual stocks which we believe offer the best risk/reward profile. Vermilion offers U.S. and global equity market research products. Vermilion’s research team, which has received numerous awards and accolades, has a combined 70 year of experience in the analysis of investment securities.
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