Vermilion ETF Pathfinder: Actionable ETF research & Ideas
BIG PICTURE• Bullish but extended. Alien to any form of a correction, U.S. equities continue to plot higher, with the weight-of-the-evidence still favoring a bullish outlook. Validating this stance: Cyclicals and small-caps are leading; defense is lagging; commodities are bottoming; and foreign markets are breaking out, particularly Europe and Japan. That said, we recommend adding exposure on pullbacks, especially in extended segments like financials.
• Value plus a side of tech: Value continues to outperform growth. This trend is primarily driven by outsized strength in financials (“valueâ€) and relative weakness in biotechs (“growthâ€). Outside of value, tech remains attractive, having yet to deviate from its long-term leadership status.
U.S. SECTORS... see pages 3-4
• Overweights: Energy, Financials, Industrials, Materials, and Tech. Take advantage of pullbacks.
• Underweights: Consumer Staples, Health Care, Utilities. Price patterns depict bottoms/stabilization, but relative strength continues to point south.
U.S. INDUSTRIES... see pages 5-8
• Retail is strengthening. The SPDR Retail ETF (XRT) recently broke out from a 12-month base. Internally, auto-related stocks like ABG, LAD, and KMX are attractive. Buy.
• Energy is bottoming. WTI continues to escort energy stocks higher. Take advantage of any weakness, especially in E&Ps (XOP).
• Other attractive themes: Social media (SOCL) and metals & mining (XME).
INTERNATIONAL EQUITIES... see pages 9-11
• Developed > EM: A big shift is underway abroad. EM is ceding its leadership status to developed markets, namely Europe and Japan. This is visible in the EAFE/EM ratio (EFA/EEM), which is beginning to inflect higher. Accordingly, shift overweights from EM to developed. On pullbacks, buy HEFA, HEDJ, and DXJ (all currency-hedged).
• European banks are bottoming. This is still one of our favorite international themes. Take advantage of the near-term pullback in EUFN.
BONDS, COMMODITIES, & CURRENCIES... see pages 12-13
• Commodities are bottoming. Both WTI and brent crude just broke out from 15-month bottom patterns. Broad commodity ETFS, like DBC, who are heavily weighted towards energy, are also breaking out. Buy.
• Convertible-focused funds are bullishly inflecting. The SPDR Barclays Convertible Securities ETF (CWB), which is breaking out from a base, is rallying to 12-month highs relative to the iShares Treasury Bond ETF (TLT). Buy.
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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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