Do Not Be Alarmed By the Closing of JP Morgan Indexed ETFs.

Do Not Be Alarmed By the Closing of JP Morgan Indexed ETFs.  I say this even as I say that I believe this may be part of an emerging trend.  Many mutual fund companies that are known for touting active management but stuck their feet in the water with ETFs will likely follow suit.

The press release said that J.P. Morgan Asset Management will liquidate two exchange-traded funds:

JPMorgan U.S. Minimum Volatility ETF, JMIN, 

and the JPMorgan U.S. Dividend ETF, JDIV.

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The release also included the following technical-sounding jargon:
Shareholders of each of the funds can sell their shares on the NYSE Arca exchange until market close on Sept. 6, the designated last trading day. The funds will stop accepting creation orders from authorized participants after the Sept. 6 market close, and shares will be delisted ahead of the Sept. 7 market open.  Shareholders who continue to hold shares of either of the Funds on the Funds’ designated aforementioned liquidation date will receive a liquidating distribution of cash in the cash portion of their brokerage accounts equal to the amount of the net asset value of their shares.  The funds are set to be liquidated on Sept. 14.

What does this all mean for holders of JMIN and JDIV?  There is absolutely no reason to worry.  First, they are protected by the underlying assets held by the fund.  I believe that rather than wait for liquidating distributions, most fund shareholders should consider selling their shares online sometime between 10:30 AM and 2:30 PM using limit orders.  Both JMIN and JDIV generally have spreads kept $0.01 apart so shareholders should realize a price very close to the fund’s Net Asset Value (NAV).

Since the underlying stocks of both funds are very liquid and both funds had assets of less than $60 million the fact that other shareholders will be selling should not affect the share price very much because market makers will step in if the fund drifts too far from NAV.  This is one of the big advantages of ETFs over closed-end funds.

Why is JP Morgan liquidating these two ETFs that together accounted for approximately $110 Million under management?

JP Morgan Asset Management’s philosophy is that actively managed funds serve investors better than passive funds.  Prior to SEC rule changes in 2019 facilitating the entry of semi-transparent actively managed ETFs, passively managed ETFs constituted more than 90% of the assets in the ETF space.  That proportion is changing with the SEC innovation combined with increasing investor and provider awareness that actively managed mutual funds are much more process-, cost- and tax-efficient in the ETF structure than they had been in the traditional structure.  In JP Morgan Asset Management’s case, they probably prefer to focus on projects that utilize the company’s core in-house strength and expertise.  The decision to drop passive products in favor of active has probably been bolstered by the quick success enjoyed by the JPMorgan Equity Premium Income ETF, JEPI. It has accumulated more than $12 billion under management in just two years of existence.

What should investors do if they want to reinvest the cash received for the shares?

JMIN, focused on minimizing price volatility, has the following relevant data:

Beta = 0.57; Dividend Yield = 1.6%; YTD Gain = 0.3%; 1-Yr. Gain = 7.0%

For JDIV, focused on high risk-adjusted dividend yield, these were the numbers:

Beta = 0.62; Dividend Yield = 2.4%; YTD Gain = 2.5%; 1-Yr. Gain = 6.9%

During the past year, both JDIV and JMIN handily outperformed the S&P 500 Index and more than 75% of non-leveraged equity funds with above-average yields and below-average Betas. It would seem that investors during this period should be happy with these results and are probably less than thrilled that the funds are closing.  That said, let’s look at potential replacement holdings for owners of JDIV and JMIN.

The most popular ETF in the minimum volatility space is iShares MSCI USA Min Vol Factor ETF, USMV, with $30 Billion in AUM.  The most popular ETF in the high dividend space is VYM, the Vanguard High Dividend Yield ETF with nearly $50 Billion in AUM.  Investors preferring to combine both objectives may wish to add Invesco S&P 500® High Dividend Low Volatility ETF, SPHD, to their radar screen for potential consideration.  For an active comparison in the low volatility and high-income space, DIVZ, the TrueShares Low Volatility Equity Income ETF is also worthy of inclusion in your research.

A quick summary of the ETFs being included:

USMV, iShares MSCI USA Min Vol Factor ETF – The fund typically overweights defensive, dividend-paying sectors. USMV’s optimizer also aims to keep other market -like risk factors as it dials back on volatility.

VYM, Vanguard High Dividend Yield ETF – VYM tracks the FTSE High Dividend Yield Index. The index selects high-dividend-paying US companies, excluding REITS, and weights them by market cap.

SPHD, Vanguard High Dividend Yield ETF – SPHD tracks a dividend-yield-weighted index comprising the least volatile, highest dividend-yielding S&P 500 stocks.

DIVZ, True Shares Low Volatility Income – DIVZ aims to curate a portfolio that is less volatile and has higher dividend yield than the S&P 500. The fund adviser initially screens US-listed securities for sustainable dividend growth using various quantitative and qualitative indicators. Then high-quality companies are identified based on high cash flow, stable revenue streams and capital reinvestment programs. Finally, the fund adviser selects securities trading at attractive valuations with low volatility. The actively-managed fund’s high-conviction and low-turnover strategy results in a diversified portfolio of 25-35 stocks.

JEPI, JP Morgan Equity Premium Income ETF – the actively managed fund selects stocks from the S&P 500 Index using a process to identify value stocks with favorable risk/return characteristics along with ESG considerations. The final portfolio looks to hold those securities with lower volatility relative to the benchmark index. In addition, the fund’s adviser enters equity-linked notes to provide the returns of the S&P 500 Index with covered call options written. The objective is to provide the same return as the S&P 500 Index with lower volatility over a 3-5-year period combined with monthly income.

VOO, Vanguard S&P 500 Index ETF, tracks the S&P 500 Index.

Current ValuEngine reports on these ETF’s can be viewed HERE

Using ValuEngine and Yahoo Finance reports, let’s look at the investment profiles of these five ETFs now in comparison with the Vanguard S&P 500 ETF, VOO.

Market Index Being Tracked iShares-MSCI-US Minimum Volatility Vanguard High Dividend Yield Invesco S&P 500 High Dividend Low Volatility  TrueShares Low Volatility Equity Income  JP Morgan Equity Premium Income Vanguard S&P 500 Index 
ValuEngine Rating 5 5 4 5 N/A 3
VE Forecast 1-yr. Price Return +2.7% +1.3% +0.3% +1.5% N/A -0.3%
Historic 3 mo. Price Return 6.6% 7.9% 0.5% 2.4% 4.7% 8.9%
Historic 6 mo. Price Return 1.6% 8.8% 3.4% 4.1% -3.0% -3.0%
Historic 1-Yr. Price Return -1.3% 6.2% 5.1% 6.5% 1.6% -4.1%
Historic 5-Yr Ann. Price Return 7.8% 7.8% 7.6% N/A N/A 10.3%
Volatility 14.2% 16.2% 18.0% 14.9% N/A 17.5%
Sharpe Ratio 0.55 0.52 0.67 0.74 N/A 0.59
Beta 0.78 0.86 0.84 0.59 0.57 1.00
# of Holdings 173 441 47 31 104 500
Undervalued by VE % 28% 45% 40% 38% Not Applicable 29%
P/B Ratio 4.6x 2.2x 4.0x 2.4x 4.7x 4.1x
P/E Ratio 22.1 15.5 20.1x 16.0x 21.6x 20.7x
Div. Yield 1.4% 2.9% 3.5% 4.3% 11.9% 1.5%
Expense Ratio 0.15% 0.06% 0.30% 0.65% 0.35% 0.03%
Index Provider MSCI CRSP S&P Dow Jones. None – Active None – Active S&P Dow Jones


Optimized Weighting Mkt. Cap Weighting Dividend Yield Weighted None – Active None – Active Mkt. Cap Weighting
ETF Sponsor iShares by Blackrock Vanguard Invesco True Shares JP Morgan Vanguard


Current ValuEngine reports on these ETF’s can be viewed HERE

  1. Key Findings:
    All four potential replacement ETFs rated by ValuEngine are superior choices for the next year to the Vanguard S&P 500 ETF,  DIVZ, USMV and VYM all get ValuEngine’s highest rating of 5. SPHD is also rated as above-average with a rating of 4 out of 5. JEPI, with considerable deployments in derivatives and fixed income securities, is not rated by ValuEngine while VOO gets a neutral 3 rating.
  2. The most compensation in return for a given level of risk as measured by the Sharpe Ratio was posted by DIVZ, the TrueShares Low Volatility Equity Income ETF.  This is demonstrated by its Sharpe ratio of 0.71. SPHD with 0.67 also had a better Sharpe Ratio than the 0.59 posted by
  3. JEPI’s active management teamhas done an excellent job of meeting the ETF’s twin objectives of high dividend yield and low price volatility.  It places highest of the six ETFs in both dividend yield and Beta.  In fact, its current dividend yield of 11.9% is equaled by no US equity ETFs that do not use derivatives.  DIVZ had the highest yield and the lowest Beta of the ETFs that do not use derivatives.
  4. VYM performed best on valuation with the lowest price-to-earnings and price-to-book ratios among the six ETFs.  DIVZ was second in this category with slightly higher valuations that were also much lower than the category’s third place finisher,



ETF liquidations should really be thought of more as security retirements.  Any Investors can receive the full value of the underlying securities when sold or redeemed. In many ways, it is a shame that JP Morgan opted to close JDIV and JMIN as both had fulfilled their investment objectives very well in a very tough environment for equities. My belief is that given recent regulatory standards relaxing constraints on active management in the ETF structure, JP Morgan felt that active ETFs such as JEPI were a better fit for the firm’s investment profile.

Indeed, investors currently holding JMIN and JDIV would have invested in a similarly low Beta ETF with a much higher dividend yield by purchasing actively managed JEPI as long as they were comfortable with the fact that the fund is an equity hybrid that also holds bonds and derivatives and is semi-transparent with its current holdings.

For those with the same goals and who prefer using fully transparent ETFs that only hold stocks, DIVZ appears very worthy of consideration.  Even better news is that for those needing to redeploy assets into conservative ETFs with superior dividend yields to VOO, all of the ETFs reviewed including USMVVYM, and SPHD all performed very well in the past 12 months and look to be well-positioned for conservative investors.  This may be especially true if the equity markets remain volatile and continue to be characterized by above-average economic and geopolitical risk profiles.

By Herbert Blank

Senior Quantitative Analyst, ValuEngine Inc

Aligning ESG Principals with Real World Performance

March 1, 2022 by Herb Blank

The trend is your friend.  That is, until it isn’t.

The list of best performing non-leveraged ETFs for the past 90-days is led almost exclusively by ETFs that hold the stocks of fossil-fuel-based energy and closely related companies.  At the same time, the prices of ESG and more climate-focused impact ETFs have plunged dramatically.  With close eyes on the ever-worsening conflict in the Ukraine and its projected effects on oil prices and inflation, few experts are expecting a reversal to come in the next six months.  However, there are some contrarians that do see a reversal on the horizon.  This week we look at Impact ETFs with an emphasis on environmentally focused ETFs.

The website maintains a helpful list of the mind-boggling number of ETFs designed for ESG and Impact investors.  Even more helpful, it follows a taxonomy that allows readers to zero in on the ETFs that fall into the classification that most interests them. This article only includes ETFs that contain mostly US Stocks.

The first grouping contains the names and tickers of 21 broad-based ESG funds and is listed below. Broad-based ESG ETFs generally utilize best-of-industry scores in Environmental, Social and Governance rankings in their methodologies to eliminate poor scorers, generally by at least 50% in each industry. There are nuances separating each.  For example, iShares by BlackRock and MSCI have created three different levels of screened ETFs with ESGU screening out the bottom 50% of ESG scorers in each industry group; SUSA eliminates all carbon-based and other exposures from ESGU and SUSL focuses on the top 25% of performers in SUSA.

Indexes, targeted segments such as cap size, and value/growth are available.  What most of these have in common is that they are created primarily for risk control.  Many studies during the last ten years have confirmed that companies that score below average on ESG have more risk of future reputation-damaging events that affect revenues and stock performance.  Indeed, most of the funds listed here have outperformed their selected benchmarks over the last 5 years, generally with slightly better Sortino Ratios (a measure similar to Sharpe ratio but looking only at downside deviations).  This makes them solid core investments and very suitable for the needs of institutional investors. ESGU with more than 20 billion dollars under management and AAA (highest) ESG rating from MSCI is a solid institutional choice.

Broad-Based ESG-Screened Funds (22)

FlexShares STOXX US ESG Select Index Fund (ESG)


iShares ESG MSCI USA Leaders ETF (SUSL)

iShares MSCI USA ESG Select ETF (SUSA)

Vanguard ESG U.S. Stock ETF (ESGV)

Xtrackers MSCI USA ESG Leaders Equity ETF (USSG)

iShares MSCI KLD 400 Social ETF (DSI)

Nuveen ESG Large-Cap Value ETF (NULV)

Nuveen ESG Small-Cap ETF (NUSC)

iShares ESG Aware MSCI USA Small-Cap ETF (ESML)

Nuveen ESG Large-Cap Growth ETF (NULG)

Xtrackers S&P 500 ESG ETF (SNPE)

IQ Candriam ESG US Equity ETF (IQSU)

Nuveen ESG Mid-Cap Growth ETF (NUMG)

Nuveen ESG Mid-Cap Value ETF (NUMV)


iShares ESG Advanced MSCI USA ETF (USXF)

ClearBridge Large Cap Growth ESG ETF (LRGE)

Nuveen ESG Large-Cap ETF (NULC)

WisdomTree U.S. ESG Fund (RESP)

Nuveen Winslow Large-Cap Growth ESG ETF (NWLG)

Hartford Schroders ESG US Equity ETF (HEET)

As Todd Rosenbluth of CFRA wrote for an article printed in Barron’s in January, 7 of 10 funds fitting the large-cap or total market categories outperformed the S&P 500 in 2021. My research using ValuEngine data shows that most of these also outperformed the S&P 500 over the five-year period ending December 31, 2021. This is noteworthy since the majority of ETFs and a larger majority of mutual funds did not do so. As many others have documented, we now have enough data to conclude that empirically, the outdated belief that funds that take social responsibility criteria into account must sacrifice performance is dead.    

Most institutional portfolio management teams now consider ESG pillar data to be risk factors.  From a valuation perspective, they are calculable “intangibles” that should be accounted for on a modernized balance sheet.  We are quickly getting to a time where asset managers not doing so risk being criticized for not following best practices.  Therefore, ESG ETFs are simply more prudent core investment allocations than traditional ETFs. For these reasons, most taxonomies of responsible investing in today’s world make a distinction between ESG investing, also called ESG-Aware investing, and Impact Investing.  Somewhere between the two lies Fossil-Fuel-Free Investing

Most of the constituents of Fossil Free funds are similar. However, the resultant industry sector “bets” will create cyclical outperformance and underperformance that may be considered suboptimal for institutional investors focused on benchmark tracking.

Broad-based ESG ETFs are not, however, the most targeted options for investors that truly wish to align their investment dollars with their personal convictions.  ESGU, for example, will contain high-carbon companies such as ExxonMobil and other companies with business practices many investors may find abhorrent for diverse reasons.  An individual or group looking for value alignment however is unlikely to be satisfied with ESGU because they still own too many companies engaged in activities inconsistent with ESG objectives.

Let’s take a look at more targeted categories of impact ETFs.

  • Actively Managed (7)

TrueShares ESG Active Opportunities ETF (ECOZ)

American Century Sustainable Equity ETF (ESGA)

Stance Equity Large Cap Core ETF (STNC)

Fidelity Sustainability U.S. Equity ETF (FSST)

Goldman Sachs Future Planet Equity ETF (GSFP)

Trend Aggregation ESG ETF (TEGS)

VictoryShares THB Mid Cap ESG ETF (MDCP)

  • Low-Carbon and Climate Transition (6)

BlackRock U.S. Carbon Transition Readiness ETF (LCTU)

iShares MSCI ACWI Low Carbon Target ETF (CRBN)

Invesco MSCI Sustainable Future ETF (ERTH)


BlackRock World ex U.S. Carbon Transition Readiness ETF (LCTD)

JPMorgan Carbon Transition US Equity ETF (JCTR)

iClima Global Decarbonization Transition Leaders ETF (CLMA)

  • Clean Energy, Smart Grid, and Cleantech (23)

First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN)

Invesco WilderHill Clean Energy ETF (PBW)

ALPS Clean Energy ETF (ACES)

iShares Global Clean Energy ETF (ICLN)

First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID)

Invesco Solar ETF (TAN)

Global X Solar ETF (RAYS)

Invesco MSCI Sustainable Future ETF (ERTH)

First Trust Global Wind Energy ETF (FAN)

Global X Wind Energy ETF (WNDY)

Invesco Global Clean Energy ETF (PBD)

SPDR Kensho Clean Power ETF (CNRG)

VanEck Vectors Low Carbon Energy ETF (SMOG)

Global X CleanTech ETF (CTEC)

Global X Renewable Energy Producers ETF (RNRG)

Defiance Next Gen H2 ETF (HDRO)

Direxion Hydrogen ETF (HJEN)

Global X Hydrogen ETF (HYDR)

SPDR S&P Kensho Intelligent Structures ETF (SIMS)

Virtus Duff & Phelps Clean Energy ETF (VCLN)

BlackRock Future Climate and Sustainable Economy ETF (BECO)

iClima Distributed Renewable Energy Transition Leaders ETF (SHFT)

VanEck Green Metals ETF (GMET)

  • Water (6)

Invesco Water Resources ETF (PHO)

Invesco Global Water ETF (PIO)

Ecofin Global Water ESG Fund (EBLU)

Invesco S&P Global Water Index ETF (CGW)

First Trust Water ETF (FIW)

Global X Clean Water ETF (AQWA)

Although actively managed Climate-focused mutual funds have been around for more than a decade, active ETFs are relatively new entrants in this category.  They are a welcome addition because separating ESG data noise from signal is still being intensely debated in the ESG community.  Additionally, most ESG data is more than one year old when finally published.

In a recent article, author Jessica Ferringer noted wryly that the FlexShares STOXX US ESG Impact Index Fund with ESG as the ticker symbol itself had an MSCI Sustainability Rating of just 7.6 as compared with 7.8 for SPY, probably not what ESG investors expected. A number of other index products also had ratings barely differentiable in sustainability from SPY.  Ms. Ferringer then mused on whether this was an area better served by active management.

For this analysis, we selected three actively managed funds that bolster the point, ECOZ, ESGU and LCTU. The other five funds are index-funds that follow specific algorithms to select impact stocks in alignment with UN-defined Sustainable Development Goals (SDGs).  These ETFs include fossil-free broad-based ETHO, clean energy technology tech funds QCLN and PBW and clean water fund PHO.  All eight of these ETFs are covered in ValuEngine ETF Reports

Brief descriptions:

ECOZ, TrueShares ESG Active Opportunities ETF is actively managed to invest in US large-cap stocks selected using a two-phase process. In the initial phase, fund advisors use their own analysis of quantitative data focused on carbon emissions combined with third-party scores to evaluate ESG characteristics and relative scoring. In the second phase, additional fundamental analytics are applied to determine each stock’s relative value. Stocks are then ranked by ESG and relative value within their respective industries, with roughly 75-125 being selected for the investment portfolio.

ESGA, American Century Sustainable Equity ETF – This is one of the first ETFs to use the nontransparent, NYSE Proxy Portfolio structure which discloses holdings only on a quarterly basis with a 15-day lag. The fund actively selects US large-caps using its own quantitative model to score stocks based on their value and growth potential with an overlay of ESG metrics, with the end goal of identifying most attractive ESG stocks. Each stock’s final composite score is evaluated on a sector-specific basis, meaning those with the strongest score in their respective sector are considered for the portfolio.

LCTU, BlackRock U.S. Carbon Transition Readiness ETF is an actively-managed portfolio of large- and mid-cap US firms in the Russell 1000 Index that are selected and weighted with a preference for lower carbon emissions. LCTU uses proprietary scoring criteria to assess the readiness of companies for a low-carbon economy transition, relative to their industry peers. The ‘transition readiness’ score includes five segments: Fossil Fuels, Clean Technology, Energy Management, Waste Management and Water Management. LCTU overweights high-scoring firms while mitigating risk. In addition to this strategy, firms may also be evaluated for good governance.

ETHO, ETHO Climate Leadership ETF – tracks the performance of an equal-weighted index that selects US stocks that exhibit the least carbon impact within its industry. Each company is measured according to their climate impact, which is calculated based on total greenhouse gas emissions from operations, fuel use, supply chain, and business activities, divided by market capitalization. The top scoring half in each industry is selected, while simultaneously excluding all companies in energy, tobacco, aerospace and defense, gambling, gold, and silver sub-industries.

QCLN, First Trust NASDAQ Clean Edge Green Energy Index Fund – QCLN holds a broad cap-weighted portfolio of US-listed firms in the clean energy industry. Eligible companies must be manufacturers, developers, distributors, or installers of one of the following four sub-sectors: advanced materials (that enable clean-energy or reduce the need for petroleum products), energy intelligence (smart grid), energy storage and conversion (hybrid batteries), or renewable electricity generation (solar, wind, geothermal, etc). Because there is subjectivity in classifying companies as “clean energy”, potential investors would be well-served by reviewing the fund’s portfolio to make sure your definition of “clean energy” matches QCLN’s.

PBW, Invesco WilderHill Clean Energy ETF – PBW tracks a modified equal-weighted index of companies involved in cleaner energy sources or energy conservation. It is highly diverse in scope, reaching beyond just industry pure-plays like wind, solar, biofuels and geothermal companies, to include companies based on their perceived relevance to the renewable energy space. The fund’s proprietary selection process and its mandate are to hold only select US-listed companies that are perceived to benefit from the societal transition or advancement toward clean energy and conservation.

PHO, Invesco Water Resources ETF – PHO is a water-themed fund of US companies that create products that conserve and purify water for homes, businesses, and industries. Securities also participate in the Green Economy, as determined by LLC. Holdings are weighted by liquidity, with no more than five companies capped at 8% and with the rest distributed equally. The index is reconstituted annually in April and rebalanced quarterly

ESG, FlexShares STOXX Select ESG ETF – follows a principles-based index composed of US-listed companies that exhibit environmental, social, and corporate governance (ESG) characteristics. Until recently, the fund was named FlexShares STOXX US ESG Impact Index Fund. STOXX is a Switzerland based index provider that launched as a pioneer in sustainable indexing more than 20 years ago.  Selection factors are aligned with UN Sustainable Development Goals (SDGs).  They include: low emissions; board governance and inclusion criteria; policies against child labor, and non-use of golden parachute agreements. Disqualifying characteristics include non-adherence to UN Global compact principles, involvement in controversial weapons, or coal mining. All qualifying constituents are weighted based on an aggregated “ESG score” derived from the factors mentioned above.

The following chart compares pertinent factors. A few of these factors including MSCI ESG Score, Start Date, P/B ratio, P/E Ratio and Expense Ratio came from  The MSCI ESG Fund Rating measures the resiliency of portfolios to long-term risks and opportunities arising from environmental, social, and governance factors.  The rest of the data came from the ValuEngine reports.

Current ValuEngine reports on these ETF’s can be viewed HERE

ValuEngine Rating 4 5 3 4 5 5 5 3
MSCI ESG Score 8.6 8.2 7.9 7.4 7.0 6.7 10.0 7.6
Start Date Feb-20 Jul-20 Apr-21 Nov-15 Feb-07 Mar-05 Dec-05 Jul-16
VE Forecast 6-mo. Price Change +2.7% +2.7% +2.0% +2.0% +3.7% +5.2% +3.1% +2.1%
VE Forecast 1-yr. Price Change -1.1% +1.1% -1.9% -1.1% +3.3% +4.7% +0.1% -1.8%
Historic 1 mo. Price Change -5.5% -4.7% -5.4% -5.3% -12.7% -10.9% -5.7% -5.8%
Historic 3 mo. Price Change -14.3% -9.4% -9.9% -13.4% -30.4% -38.2% -14.1% 8.8%
Historic 1-Yr. Pr. Change -1.9% 10.8% N/A -0.7% -35.1% -52.9% 6.0% 9.8%
Historic 5-Yr Ann. Pr. ChangePrice N/A N/A N/A 14.3% 25.7% 22.0% 14.8% 14.5%
Volatility 18.2% 12.2% 13.8% 17.5% 32.3% 37.6% 17.8% 16.0%
Sharpe Ratio N/A 1.3* provisional N/A 0.8 0.8 0.6 0.9 0.9
Beta 1.06 1.07 0.98 1.07 1.45 1.50 0.95 1.00
# of Stocks 61 38 331 264 62 79 38 273
Undervalued by VE % 55% 66% 52% 56% 63% 79% 38% 46%
P/B Ratio 7.5 N/A 4.7 4.0 4.9 4.9 5.1 5.0
P/E Ratio 34.6 N/A 28.2 30.8 -73.1 -10.4 36.1 26.3
Div. Yield 0.5% 0.8% 2.4% 0.8% 0.0% 2.2% 0.2% 1.1%
Expense Ratio 0.58% 0.39% 0.14% 0.48% 0.60% 0.61% 0.60% 0.32%
Active or Indexed Active Active Active Indexed Indexed Indexed Indexed Indexed
ETF Sponsor/ Advisor if not the sponsor True Shares/ Purview Investments American Century BlackRock

(NOT iShares)

ETHO Capital First Trust INVESCO NVESCO FlexShares/Northern Trust

Key Findings:

  1. Six of the eight ETFs are rated by our ValuEngine models to outperform for the next 6-month and year-ahead periods.  We think investments in all six of these ETFs are very timely right now. The funds with our top rating of 5 include: ESGA, PBW, PHO and QCLN. 
  2.  In descending order, the four ETFs top-rated for overall ESG performance by MSCI are: PHO, ECOZ, ESGA and LCTU.  In keeping with the earlier reporter’s observation, three of the four are actively managed with only the indexed clean water ETF topping the more sector-diversified actively managed funds.  Even though all three are listed as ESG funds taking all the SDGs into account, all three also qualify as environmental impact funds.
  3. The three actively managed ETFs all have less than three years of actual history and only ECOZ has two years under its belt. Still, the best performer for the last 12-months and 1 month, ESGA, is in the actively managed category with nearly a 10.9% 12-month return while the majority of the others had negative returns. ESG had the least negative return over the past three months and placed second for the past 12 months.
  4. For long-term performance, the best ETFs were the clean energy ETFs despite the carnage they endured in the past year.  5-year rates of return for QCLN and PBW respectively were 25.7% and 22% respectively as compared with 13.6% for SPY, the SPDR S&P 500 Index ETF.  On the risk side, they have by far the two highest annual price volatility records of this group at greater than 30% per annum.
  5. The two INVESCO indexed clean environmental ETFs, PBW and PHO both with top VE ratings, are the two oldest ETFs in the study.  This is because they acquired a company called PowerShares that was a true innovator in providing and promoting ETFs fitting this category.  Fittingly, PowerShares Founders Bruce Bond and John Southard now head a provider called Innovator ETFs.
  6. Surprisingly, the lowest expense ratio in this sample set belongs to an actively managed fund, LCTU by Blackrock at just 0.19%.  The BlackRock brand is being used for the company’s active ETFs in lieu of the iShares brand for its indexed products.  Continuing this aberration, the three most expensive ETFs are all indexed including the two from INVESCO, PBW and PHO, along with QCLN from First Trust.
  7. Only LCTU (2.4%) and PBW (2.2%) provide good dividend yields for investors, about 120 and 100 basis points respectively of SPY. Of the remaining ETFs, only ESG has a dividend yield above 1%. The Price/Earnings ratios available on these ETFs are higher than that of SPY and two have negative P/Es.  On the other hand, except for ECOZ, most of the Price/Book ratios are right in line with SPY, very close to 5.0 with ETHO and LCTU having the best ratios.  On a stock constituent basis however, rather than a position-weighted average, ValuEngine’s valuation ratings can help locate an above-average number of undervalued stocks in all of these ETFs other than PHO, the clean water ETF.  PBW is a particularly fertile hunting ground with 69 of its 79 stocks classified as undervalued including top ten holding Daqo New Energy (DQ). With an outperform (4) rating, Jinkosolar holdings (JOS) may also be worthy of a long look.  One caveat, about half of PBW’s holdings are small-to-micro-cap stocks so there may be issues with liquidity.
  8. Most of these ETFs are relatively small in Assets Under Management (AUM).  The exception, surprisingly to me, is also the youngest.  BlackRock’s LCTU, the most institutionally priced, has more than $1 billion in AUM.  Three others, ETHO, QCLN and ESGA are also over $100 Million in AUM.  Despite its long history and the highest rates of return of this group of ETFs, PBW has just under $30 million in AUM.  All three of the remaining ETFs are under $15 million in AUM with less than $5 million in ESG.  I am not an alarm-bell sounder on low-AUM ETFs.  The funds are backed by the underlying securities and even if a sponsor closes a US-stock-based ETF, investors will get out whole. Since these consist primarily with large-to-midcap US stocks, investors should do fine in the event of liquidation.  ESG by FlexShares is probably the most immediately vulnerable to possible liquidation.

In summary, ValuEngine’s models are calling strongly for a rally in these impact ETFs, particularly the three focused most directly on clean energy: QCLN, PBW and PHO. ESGA is the highest rated active fund and also has better last-12-month performance than the other two.  Going against the price trend and most pundits believing that clean energy stocks will remain out of favor for the foreseeable future, contrarians may wish to swoop in now. ETHO and ECOZ also should both be attractive now to contrarians.

Although I generally discourage impact investors from quarter-to-quarter or even year-to-year performance comparisons, there is nothing wrong with having timing on your side if our models turn out to be prescient.  However, I urge high conviction investors to look at the downloadable holdings files to make sure that holdings are in alignment with their values but not to worry too much about short-term fluctuations.

This is where some investors including yours truly may have a problem with semi-transparent ESGA, otherwise a very attractive investment option. It uses a proxy holdings file containing decoy securities to protect its positions.  That may help the American Century team by being front-run in trades but provides less comfort on the values-in-alignment investor.  Personally, for this reason, I hold a position in one of my portfolios in ECOZ which is a fully disclosed active ETF with a Chief Investment Officer, Linda Zhang, that I know well and for whom I have a very high personal regard..

Recently, I added a smaller position in STNC by Stance Capital despite its very short history. STNC represents perhaps the best compromise to full position disclosure and opaque trading basket protection to shield ETFs from potentially large impact trading costs.  It uses Shielded Alpha fintech from Blue Tractor Group.  The result is that I know 100% of the stocks owned by STNC but competitive traders cannot see the amounts of those shares, if any, that may be sold (or bought) that day.  STNC Founder Bill Davis is also someone I’ve followed for years and is also well respected in the “ESG Circuit.”  So as with many portfolio managers and investors as well as in keeping with the category, personal preferences play a role in how I wish to align the investment dollars under my aegis with my convictions.  Everyone should do their own research and exercise their own judgments.

By Herbert Blank

Senior Quantitative Analyst, ValuEngine Inc


In this edition of Signals, we look at video software developer Vimeo, which was spun off from Barry Diller’s IAC in 2021. In the ensuing months, Vimeo stock has nosedived from the $50 per share range to a recent $12.50. Can Vimeo’s stock price regain those lofty levels and even climb to new heights or is it destined to continue to fall? To find answers we present both a fundamental take of Vimeo from ValuEngine and an analysis of the top executives at the firm by our client Management CV.

CEO and executive team research and ratings pioneer Management CV, notes Vimeo has displayed bad timing as well as results. They state that CEO Anjali Sud (37) disappointed her investors with the firm’s year end results and lowered guidance last week. She also delivered an unexpected surprise with the “resignation” of her CFO Narayen Menon (52) just as the CEO is about to take maternity leave. The language of CFO Menon’s separation agreement suggests that his departure may not have been at his own discretion but he will stay on temporarily reporting to Interim CEO-elect Mark Kornfilt (39) who will take over later next month. The Company said simply that they are conducting a formal search process with a headhunter for a new CFO. With the shares down 80% since the firm’s IPO in June last year, the CEO’s annual 2021 letter was a mea culpa citing a “transformational and humbling first year as a public company” and saying in part “Execution is hard to get right, but it’s also something you can improve at, course correct and hone. Not so if you’ve got the wrong strategy, a sub-par product, or a market with structural headwinds. Vimeo has the opposite.” We do not think the CEO’s short term absence (likely to start in March) is going to be a material concern for the firm’s operations but it may be a useful sabbatical for a young celebrity CEO to reconsider her tactical plans. The firm’s President and head of product, Mark Kornfilt (39) will be the Interim CEO and Board Chairman Joey Levin (41) previously served as the interim CEO for a year prior to Sud’s hiring in 2017.

Stock valuation and forecasting service ValuEngine, which utilizes advanced quantitative techniques to analyze fundamental and technical data, rates Vimeo neutral and gives the video software solutions provider three (out of a possible five) engine rating. ValuEngine updated its recommendation from BUY to HOLD for VIMEO INC on 2022-02-18. Based on the information they gathered and their resulting research, they feel that VIMEO INC has the probability to ROUGHLY MATCH average market performance for the next year. The company exhibits ATTRACTIVE Company Size but UNATTRACTIVE Sharpe Ratio.

The following is extracted from ValuEngine’s recent research report on VMEO.

Business Summary: Vimeo Inc. provides video software solutions. The company’s platform enables any professional, team and organization to unlock the power of video to create, collaborate and communicate. Vimeo Inc. is based in NEW YORK.


Examining Actively Managed Value ETFs

There is no sugarcoating it.  January was a lousy month for the market.  Many pundits are certain that this is the beginning of a yearlong downturn. Other experts are calling this a dip and a buying opportunity.  Our models at ValuEngine are mixed with a six-month forecast on S&P 500 ETFs of +2.6% but a one-year forecast of -2.3%.  The way we look at it, there’s no need to dump stocks now as you can lose a lot by being out of the market when it rises.

In the type of choppy market that may lie ahead and given the steep price-return decline of close to -7% in S&P 500 ETFs in January, it might be time to move some money from market-cap weighted index funds into some actively managed value-and-quality strategies geared to hold up better in volatile markets.

Why?  Many experts give three reasons.

  1. Active managers have the flexibility and agility to navigate a structural market change away from cap-weighted growth stocks.
  2. Value stocks tend to hold up better than growth stocks during this type of inflection point.
  3. Active managers generally look to find value in stocks with high earnings quality rather than indiscriminately picking stocks by using some value algorithm that a value-themed ETF might choose.

Since very few experts have a particularly good record at market timing or sector rotation, all of the arguments I just made for active ETFs with an underlying value theme may or may not turn out to be true during the next six-to-twelve months.  Nevertheless, since my blog generally focuses on comparative ETF analyses, this week’s comparison provides a closer look at a handful of actively managed ETFs with value themes as part of their fund objective statements.

The ETFs included in this analysis are:

DBLV, AdvisorShares DoubleLine Value Equity ETF – The DoubleLine managers try to identify innovative, growth-like stocks selling at reasonable prices, then supplement them in the portfolio with more traditional value-oriented stock picks. One distinguishing feature is a solid sell discipline. Holdings are sold if the target price is reached, the investment thesis is disproven, or a better investment is found.

DIVZ, TrueShares Low Volatility Equity Income ETF – An active team has guidelines geared to produce and maintain portfolios that are less volatile with higher dividend yields than the S&P 500. The screens used by the managers also include sustainable growth and high quality as defined by a combination of cash flow, revenue and capital reinvestment.

DUSA, Davis Select U.S. Equity ETF – The Davis Capital management team ‘s strategy is to purchase securities at a discount to intrinsic value, and ideally holding these positions for at least five years to keep turnover low. Its bottom-up approach to the US equity market emphasizes security selection and focuses keenly on the quality of a company’s management, business model and competitive advantages.

HVAL, ALPS Hillman Active Value ETF – HVAL is an actively-managed fund that will invest in undervalued large-cap companies in the US with perceived competitive advantages. The fund’s management team uses a screening process that begins with building and maintaining a proprietary qualified investment universe based on its qualitative analysis of each company that emphasizes industry dominance, management prowess, pricing and purchasing power, competitive advantages, financial flexibility, product and services quality, and brand value. This universe is then screened with 3 value metrics: discounted cash flow, price-to-book ratio and price-to-sales ratio.

VALQ, American Century STOXX U.S. Quality Value ETF – My inclusion of this Quality Value ETF by American Century is a bit of a stretch.  Although American Century is renowned as an active manager, VALQ was launched before the ETF Rule and subsequent SEC rule changes made active management in an ETF wrapper more pliable and made semi-transparent basket trading available to active managers.  In order to launch their active quality value ETF, they created a detailed and complicated algorithm that simulated their active management process and could be “indexized”. STOXX provides and maintains this custom index made to American Century’s specifications.  When the word “passive” is used to describe a product such as VALQ, it is so inappropriate that it makes me laugh.  Here’s a description of the index methodology constructed to emulate the manager’s active process.  A single perusal will disclose that all the research, monitoring and changes that go into this American Century fund make it anything but “passive.”  It’s simply an automated active manager.  The prospectus even allows for oversight changes when needed.

“the fund’s underlying index is actually comprised of two separate indexes: one value-focused and the other income-focused. Both sub-indexes begin with a universe of the 900 largest companies in the US. To weed out low-quality securities, the sub-indexes assess each company for profitability, earnings quality, management, and earnings revisions. Securities that score in the lower part of the quality spectrum are excluded. The value index scores securities on valuation metrics such as earnings yield and cash flow, while the income index scores securities on dividend growth, yield, and sustainability. The final portfolio allocation to value and income is determined by a momentum-based optimization model. What is left is a broad portfolio of large- and mid-cap US securities that are undervalued or have sustainable income. The index is rebalanced monthly and reconstituted quarterly.”  

This is my explanation as to why I included VALQ in this review of actively managed value and quality ETFs.  It also stood out to me because our models rank it a 5 (Strong Buy) and none of the other value ETFs included in the study earned a VE rating higher than 2 (Sell) as calculated by our models.

The table below lists data in pertinent categories for these ETFs. IWD, the Russell 1000 Value Index, is the main comparison as an appropriate benchmark. VOO is also included for reference.

ValuEngine Rating 1 1 N/A N/A 5 2 3
VE Forecast 1-yr. Price Return -5.5% -7.7% N/A N/A +0.6% -4.3% -3.1%
Historic 1 mo. Price Return -2.2% +2.1% -1.3% +2.5% -4.8% -3.1% -6.1%
Historic 3 mo. Price Return -0.9% +4.8% -1.2% -1.1% -1.0% -0.8% -3.9%
Historic 1-Yr. Price Return 18.4% 18.6% 11.9% N/A 16.6% 16.7% 16.2%
Historic 5-Yr Ann. Price Return 8.3% N/A 12.8% N/A 5.6% 7.5% 13.7%
Volatility 17.0% 12.2% 20.2% N/A 18.3% 17.1% 15.8%
Sharpe Ratio 0.49 1.52* provisional 0.63 N/A 0.31 0.44 0.86
Beta 1.00 0.58 1.05 N/A 1.00 1.02 1.00
# of Stocks 51 30 28 47 38 853 500
Undervalued by VE % 52% 40% N/A N/A 59% 52% 40%
P/B Ratio 2.4 2.4 1.8 2.7 3.3 2.7 4.9
P/E Ratio 19.8 22.6 12.8 31.3 16.3 21.4 27.4
Div. Yield 1.1% 3.7% 1.1% 2.0% 1.6% 1.7% 1.3%
Expense Ratio 0.91% 0.65% 0.62% 0.51% 0.29% 0.19% 0.03%
ETF Sponsor/ Advisor if not the sponsor AdvisorShares/ DoubleLine True Shares Davis Advisors ALPS/ Hillman American Century (indexed) iShares




  1. Key Findings:
    1. What a difference four weeks can make! Four weeks ago, the S&P 500 ETFs outperformed the vast majority of the ETFs analyzed in this column and almost everything else other than the Nasdaq.  This is no longer the case.  Not only did the S&P 500 suffer nearly a 7% loss in January but its 12-month rolling return lost its lights-out month of January 2021.
  2. The actively managed ETF portfolios in this selection are all more concentrated in terms of number of positions when compared with institutional portfolios.  The low is the 28 positions in the Davis Advisors’ DUSA and the high side is the 51 positions held by DoubleLine’s DBLV.   
  3. HVAL, ALPS Hillman Active Value ETF – has about 6 months of historical performance and generally would not be included in my ETF comparative reports.  It caught my eye for two reasons. The first is that it had the highest one-month return of any entrant in this category in the database.  The second is that it brought veteran portfolio manager Mark Hillman of renowned investment boutique Hillman Capital into the ETF marketplace.  Another bonus is that it’s 0.51% expense ratio is below average for actively managed ETFs. Due to its short history, HVAL has no ValuEngine rating.
  4. DIVZ, TrueShares Low Volatility Equity Income ETF – did exactly what the name said it would do in its first year of existence and more.  It provided the highest dividend income per share (3.7% dividend yield) with the lowest volatility (Standard deviation of 12.2%, Beta of 0.58) of any of its peers.  The unexpected benefits in 2021 was that portfolio manager Jordan Waldrep’s fund outperformed just about every industry-diversified ETF without short-selling and/or derivatives exposure during the past three months with a +4.8% return as compared with the tough-to-beat -0.8% posted by the iShares Russell 1000 Value ETF, IWD and the stunning 6.1% loss incurred by S&P 500 ETF VOO.  At ValuEngine we do not expect the outperformance benefits to continue as DIVZ has our lowest rating of 1 (Strong Sell) for price performance.  Constituent-wise, I consider it the antithesis of ARKK (long-short traders may wish to take note).  Most of the top 10 holdings resemble a roll call for the global titans of the 1980’s: Exxon Mobil, Chevron, Union Pacific; Philip Morris (and new incarnation Altria); Devon Energy; AT & T; Verizon; Philip Morris; and United Health Care.  This portfolio is not poised to outperform in a normal upward-sloping market. It proved to be great, however, as a safe harbor for income-oriented investors desiring low volatility.  It’s 65-basis-point (0.65%) fee is about average for actively managed ETFs.
  5. DBLV, AdvisorShares DoubleLine Value Equity ETF preceded Hillman by several years in bringing a highly followed portfolio manager, Emidio Checcone with an iconic asset management company, DoubleLine Group into the ETF space. This happened in 2018, to be exact.  In this case, Checcone’s team took over an existing AdvisorShares fund in need of revitalization.  The fund has consistently performed very well, beating its Russell 1000 Value benchmark ETF, IWD, handily during the past 3-year, 1-year and 1-month periods while virtually tying it for the 30month period. I find it particularly remarkable that DBLV is now 80 basis points (0.80%) ahead of IWD in annualized price appreciation for the 5-year period ending last Friday because the management team that was replaced had underperformed its bogey by more than 250 basis points (2.50%).  Currently, DBLV has our lowest ValuEngine rating of 1 (Strong Sell).  This is a rare case where I will personally disagree with our models.  In the choppy seas we predict to lie ahead for the stock market, a proven active management team with a time-tested and fundamentally sound value strategy to capture growth at reasonable prices greatly interests me.  The fund has performed well in favorable and unfavorable environments for value investors.  The biggest downside I see to DBLV is that it has a very high fee, 0.91%.  That would weigh against it more from my perspective if it hadn’t done such a consistent job thus far of earning its fee each year.
  6. DUSA, Davis Select U.S. Equity ETF, has been a personal favorite since its inception in 2017.   I had been publishing articles and columns advocating for traditional active managers to use the ETF structure since a published article in a Dow Jones Journal in 2001; the structure is not only more tax-efficient but frees the investment manager from daily cash flows so that all trades are done for investment reasons, not liquidations.  Davis Advisors was, as far as I know, the first major mutual fund family, led by Founder Christopher Davis, to understand that this was in the best interests of his fund shareholders and to take the plunge.  Davis looks to identify companies with above average growth potential selling at a discount to intrinsic value, determined both quantitatively and qualitatively after painstaking bottom-up research. Yet another variation on the Growth-at-Reasonable-Prices theme, this approach is geared to focus on about 30 holdings that the fund expects to hold for five years or more.   Looking back at our ETF comparison table, DUSA is another actively managed ETF that has done a good job of meeting its stated objectives.  On a performance basis, it has been a star among actively managed value ETFs with a 5-year annualized price return of 12.8% as compared with 7.5% for the benchmark ETF, IWD based upon the Russell 1000 Value Index.  Using traditional value ratios, DUSA has the lowest Price/Book and Price/Earnings ratios relative to its peers and the benchmark by a very wide margin.  Indeed, the P/E of 12.8 struck me as so low for a fund that has generated strong returns in this market that I had to check it twice to make sure I was being accurate.  Its forward P/E is only 10.8 according to its website. Its expense ratio of 0.62% is slightly below average for actively managed ETFs.  Again, thus far it has earned its fees in outperformance. My one disappointment is that we have not received all the DUSA data we need in our recent feed, so we have no VE rating on it.  I hope to rectify that soon.
  7. VALQ, American Century STOXX U.S. Quality Value ET, is algorithmically managed to simulate an active strategy as detailed above.  As such it makes an appropriate benchmark for active managers seeking to provide value and performance using a growth-at-reasonable-prices approach.  It has our highest ValuEngine rating of 5 (Strong Buy) for anticipated price performance.  Its past performance on the table has been less than impressive but statistically mean reversion is a positive contributor among the many factors our dynamic models tend to consider.  Another positive indicator I see in the table is the highest percentage of undervalued stocks, nearly 60%, in its current portfolio.  On a position-weighted average, its P/E ratio of 16.3 is extremely reasonable, more than 5 points lower than the 21.4 P/E of IWD.  These facts combined with its recent price tumble might explain why our models believe VALQ can provide above average price performance in the months ahead.
  8. Whether tested against Russell 1000 Value benchmark index ETF IWD or simulated actively managed VALQ from American Century, the four truly actively managed ETFs have certainly held up well in comparison since inception.  In the case of HVAL, it’s too soon to tell.  I’d call it an ETF to monitor at this time.   Although it’s just barely more than one year old, Jordan Waldrep and his management team at DIVZ have convinced me that it will continue to meet its twin objectives of providing strong dividend yields with low volatility on a fairly dependable basis. Typically, retirees tend to be less concerned with capital appreciation than their needs for income and stable returns.  This ETF that tends to hold mature and fundamentally sound companies seems like a very appropriate choice for such investors.
  9. Since our ValuEngine models are based upon the undeniable truth that timing is everything, VALQ, rated 5 (Strong Buy) is our choice for best price appreciation in the next three-to-six months.  It is a solidly constructed fund that seems well poised for a good run.  Its 29-basis point management fee is quite reasonable considering the intricate, well-designed methodology created by the American Century fund management team.
  10. DBLV and DUSA both have well-established management teams and asset management companies behind them.  Both have above-average performance records with highly desired value characteristics that favor quality over dividend yield.  In fact, I’d characterize DUSA’s record and accompanying value characteristics as well above average. The expense ratios reinforce the fact that active management from established managers still commands higher fees with only DBLV’s being above average in this category.  Despite its current lowest ValuEngine rating, DBLV is a solid choice for those investors who want both growth and stability and prefer active management to momentum-heavy index funds.  I find the case for DUSA as a buy-and-hold investor’s core active management holding even more compelling.

Every investor has to look at her or his own situation to decide what their main objectives are.  If you are looking for stability, reasonable value and active management oversight, these ETFs are probably worth your while to learn more about.

By Herbert Blank, Senior Quantitative Analyst, ValuEngine Inc. February 12, 2022

Perfect Scores –These Social ESG Performers Stocks May Be Poised For A Comeback

Axiomatic Data’s ThriveScores™ are used as an important measure of the Social ESG factor and have been shown to be valuable long-term indicators of financial and stock market performance. ThriveScores range between 0 and 1000 and a high ThriveScore usually points to strong stock market performance. It’s rare that a company will have a score of 1000, but several companies have achieved this. The factors that contribute most heavily are employee growth and growth in employer contributions to employee pension plans. At the end of 2021 only 10 companies in the Russell 3000 had ThriveScores of 1000.

Axiomatic Data’s ThriveScores™ are used as an important measure of the Social ESG factor and have been shown to be valuable long-term indicators of financial and stock market performance.  ThriveScores range between 0 and 1000 and a high ThriveScore usually points to strong stock market performance. It’s rare that a company will have a score of 1000, but several companies have achieved this. The factors that contribute most heavily are employee growth and growth in employer contributions to employee pension plans. At the end of 2021 only 10 companies in the Russell 3000 had ThriveScores of 1000.

The Long & Short of VooDoo SPAConomics (part 2)

Note most data as of late 2021 due to embargo period.

If too many shareholders redeem their, this can affect the ability to complete the transaction.  A minimum cash contribution exists for most deals.  For example, a deal could have a minimum cash contribution requirement of $100mn.  Let’s say a SPAC sold 20mn shares at $10/share and raised $200mn, but 75% of shareholders redeem.  Those redemptions result in the trust only having $50mn which is only half of the minimum cash contribution.  The SPAC sponsor may then have to seek a waiver or find other sources of cash to keep the deal from terminating.  The sponsor may seek to raise a PIPE, sell/contribute some of the sponsor shares, issue debt, or some other form of capital raising.

A recent example of this was experienced with Sustainable Opportunities Acquisition Corp (SOAC) which had announced its intention to acquire DeepGreen Metals for approximately $2.4bn.  The SPAC had raised $300mn through an IPO.  An additional $330mn was raised through a PIPE.  So, the SPAC thought it was bringing about $630mn to the table for the acquisition.  Unfortunately, greater than 90% of shareholders redeemed their shares, leaving only $27mn in the trust out of the original $300mn.  Not only did the trust shrink by 90%+ but some of the PIPE investors did not fulfill their investment, resulting in a PIPE that was $220mn smaller than expected.  In total between the redemptions and a PIPE shrinking, only $137mn of the original $630mn was available for the acquisition.  The deal terms required a minimum cash contribution of $250mn.  DeepGreen agreed to waive the minimum cash contribution, resulting in a much lower cash infusion for a company that is likely burning cash and possibly indicating how desperate the SPAC and target were to get a deal done.  The table above shows that the impact of dilution from the promote, warrants, and underwriters is greatly magnified when significant redemptions occur.

Another entry point for investor may occur after deSPAC.  DeSPAC refers to the process of the SPAC finalizing the acquisition and beginning to trade as a new entity, usually with a name that is associated with the target company and a new ticker.  A lot of the catalyst events (separation of the unit, target announcement, PIPE, forward guidance, redemptions, etc) are behind the company.  Liquidity also often improves some.  However, some catalysts still exist, including reporting of quarterly results, updating of guidance (many times a downward revision), and lock up expirations.  Some investors like to wait for the operational disappointment to occur and selling pressure from lockup expirations to subside and then focus on finding good businesses that are broken SPACs at a big discount.

To summarize, your interesting times that may be opportunities to invest in a SPAC exist at the following times

  • IPO – you receive a unit (stock + warrant/right)
    1. Advantage – you get the stock and the warrant and can turn the stock back in for $10 before the deal closes
    2. Disadvantage – you do not yet know the target company and you may have tied up your capital for up to 2 years, only to be disappointed in the target that is announced
  • Post IPO – similar to the above but the stock and warrant are usually separated and you could time your investment closer to the target announcement
  • Post Target Announcement – you can trade the stock or warrant and still have the right to redeem the shares. PIPE investments also typically occur during this phase
  • Post De-SPAC – stock begins trading as a new company (new ticker) and liquidity can often improve
  • Post Lock Up Expirations – gives investors an opportunity to see the company report operating results for one or more periods and see how the stock reacts to the flood of shares that are often sold upon lock up expiration
  • In addition to buying shares, investors may want to short shares at various times. Shorts may be most opportune at the following times
    1. When a stock is trading significantly above trust value prior to deSPAC
    2. After deSPAC to hopefully see earnings guidance disappointment
    3. Prior to lockup expirations to benefit from greatly increased selling pressure

SPAC Stock Prices Are Falling and Redemption Ratios Are Rising

There are some current trends occurring in the SPAC universe that are not that favorable.  As mentioned earlier, SPACs have been seeing some significant redemptions.  These are not isolated events.  Redemption ratios are rising as seen in the two charts below.  Investors attributed to more SPAC stock prices that are trading close to trust value.  The data confirms this (see tables below).  At the end of March 2021, more than 70% of SPACs with targets were trading ABOVE their IPO prices.  However, in August 2021, almost the inverse was true as close to 80% of SPACs with targets were trading BELOW their IPO prices.  If SPACs are trading below their IPO prices, investors are going to want their full investment back and can get that by redeeming, pushing redemption rates higher.

Unique Long Investment Opportunity & Reddit

With the recent increase in redemption ratios, a unique investment opportunity may exist.  An increasing number of instances have occurred in the last month where out of favor SPACs are seeing massive stock price rallies.  For example, assume there is a SPAC with 10mn shares outstanding and 20% (2mn) of the shares are borrowed short.  Then, assume that 90% of shareholders redeem prior to deSPAC.  So, now there are 1mn shares outstanding but 2mn shares are short.  Consequently, approximately 1mn shorts may be forced to cover as the shares they borrowed have been redeemed.  Instead of 1mn shares trying to cover against a 10mn share float, it is now only a 1mn share float.  Moreover, the Reddit Army is identifying these situations and seeing the squeeze potential and buying these stocks.  There have been instances of stock prices jumping more than 100% in a day as the shorts have to cover and Reddit is also buying.  If investors can identify these opportunities, there may be substantial profits to be made.

Markets and Sectors Being Impacted

While a company in any sector can go public through a SPAC, many of the technology, healthcare, logistics, media, retail and telecom companies have used SPACs as a vehicle to get public that may not have otherwise.  These are typically companies that have little to not revenue, are not earning profits, and generate negative FreeCF.  Perhaps. the biggest beneficiaries have been cleantech, fintech, and EV related.  See the table below to see the diverse types of intended targets of the SPAC IPOs launched in the first half of August 2021 and the targets that were announced and deSPACs that occurred during the same period.

Other SPAC like Structures

There are also some structures being pursued by sponsors that are similar to SPACs but are slightly different.  Sponsors are also trying to better align their interests with investors by further delaying lockups, structuring earnouts, etc.  One such structure is a SPARC.  In a SPARC, investors are not required to invest money up front, but rather receive a right to buy in once the investment vehicle announces a merger target.  This is not subject to any time limits, unlike the typical SPAC that has a 24 month time horizon.  Pershing Square pursued this structure with it attempted acquisition of Universal Music Group.

New Ruling a Boon to Bond ETFs and their Sponsors

Lost in all the market volatility and concerns about interest rate hikes and inflation was a regulatory ruling with major implications for asset capture in the ETF industry. The New York State Department of Financial Services is the state’s insurance regulator.  In December it published a new regulation that, until Jan. 1, 2027, allows shares of an ETF to be treated as bonds for the purpose of a domestic insurer’s risk-based capital report provided the ETF meets certain criteria. The two most pertinent criteria are that the ETF tracks a bond index and has at least $1 billion in assets under management. Why is this so important?  At the end of 2019, the US Insurance industry reported holding more than $4.5 trillion in bonds.

“This puts bond ETFs on a level playing field with bonds in an insurer’s portfolio,” said Robert S, Kapito, President of BlackRock, on Jan. 14 during the company’s earnings call for the fourth quarter 2021.  He added that BlackRock is “very excited about the fact that insurers now will use more ETFs to represent their bond portfolio.”  BlackRock is the sponsor of iShares.

The difference between treating a holding as debt rather than equity for risk-based capital requirement purposes “is orders of magnitude,” said attorney Daniel A. Rabinowitz, a partner at the law firm Kramer Levin Naftalis & Frankel. He states that “You have to hold much, much more capital against equity securities.”

Among criteria an ETF must meet to qualify under the new regulation are that the fund tracks a bond index and has at least $1 billion in assets under management. A quick top-level analysis of the current array of bond ETFs offered in the US provides key insights.  The bottom line is that iShares and Vanguard will probably be the largest beneficiaries of the new rules.  A closer look reveals why.

There are 97 Bond ETFs that currently satisfy those two criteria.  The lion’s share of the assets are accounted for by the top 25.  Those ETFs have between $10 billion and $91 billion in AUM.  The remaining 72 have less than $10 billion apiece. Of these, there are another 20 Bond ETFs with between $5 and $10 billion.  Two index providers, Bloomberg and ICE Data Services, are dominant in AUM and number of products.

Taking a deeper dive, 17 of the largest 25 ETFs are iShares.  Six are Vanguard products with one apiece issued by Schwab and SPDRs.  It surprised me that four of the top 5 in AUM were Vanguard ETFs.  It also surprised me that very close to half (47.3%) of the total AUM in the top 10 were in those Vanguard products.  Here is a table from an screen showing the top ten ETFs of the 97 that would qualify today under the new NY State Insurance rule reducing capital requirements.

Ticker Name Issuer Expense Ratio AUM (Billions) Description
AGG iShares Core U.S. Aggregate Bond ETF Blackrock 0.04% $89.65 Fixed Income: U.S. – Broad Market, Broad-based Investment Grade
BND Vanguard Total Bond Market ETF Vanguard 0.04% $82.94 Fixed Income: U.S. – Broad Market, Broad-based Investment Grade
VCIT Vanguard Intermediate-Term Corporate Bond ETF Vanguard 0.04% $45.75 Fixed Income: U.S. – Corporate, Broad-based Investment Grade Intermediate
BSV Vanguard Short-Term Bond ETF Vanguard 0.05% $41.42 Fixed Income: U.S. – Broad Market, Broad-based Investment Grade Short-Term
VCSH Vanguard Short-Term Corporate Bond ETF Vanguard 0.04% $41.19 Fixed Income: U.S. – Corporate, Broad-based Investment Grade Short-Term
TIP iShares TIPS Bond ETF Blackrock 0.19% $36.86 Fixed Income: U.S. – Government, Inflation-linked Investment Grade
LQD iShares iBoxx USD Investment Grade Corporate Bond ETF Blackrock 0.14% $36.57 Fixed Income: U.S. – Corporate, Broad-based Investment Grade
MUB iShares National Muni Bond ETF Blackrock 0.07% $24.55 Fixed Income: U.S. – Government, Local Authority/Municipal Investment Grade
MBB iShares MBS ETF Blackrock 0.04% $24.47 Fixed Income: U.S. – Government, Mortgage-backed Investment Grade
IGSB iShares 1-5 Year Investment Grade Corporate Bond ETF Blackrock 0.06% $23.06 Fixed Income: U.S. – Corporate, Broad-based Investment Grade Short-Term

Summarizing some salient points from this table:

  1. The top 10 indexed bond ETFs account for $446.5 billion or about 37% of the $1.2 trillion currently in bond ETFs.
  2. The two largest bond funds, one from iShares and the other from Vanguard, follow very similar total US bond market indexes and are almost identical in AUM Together, they comprise about $170 billion.
  3. All of the Vanguard bond ETFs have iShares counterparts with only AGG being larger than the Vanguard entry.

In assessing what all this will mean for the exchanged-traded ecosystem requires two data points I do not have:

  • How quickly will insurance companies take advantage of the simplified operational processes, lower trading, custody, clearing, settlement and compliance costs and greater fungibility they would realize by replacing the bonds they hold with qualifying bond ETFs?
  • What percentage of  the dollar value of insurance company bond holdings that can potentially take advantage of this ruling?

From a bottom line and best practices perspective, the answer to the first question should be: ASAP.  The operational advantages and cost savings to be realized from switching qualifying bond holdings to shares of ETFs are tremendous.  Tempering this excitement is my personal experience in my profession.  In my 40 years in the investment industry, even the most obviously beneficial changes take at least months and generally years to be accepted and adopted.  It is also true that the US insurance industry’s record of implementing lightning-fast changes is less than prodigious.  Still, the cost savings on the table is huge.

The answer to the second question requires knowing whether most of the other state insurance regulators will follow suit with similar rulings so that there is national adoption of this treatment of bond ETFs regarding capital requirements.  My expectation is that the national regulatory part of the equation will be taken care of very quickly.  Once that hurdle is overcome, my best guess is that at least 75% of the fixed income assets held by US insurance companies could be converted in this manner into indexed bond ETFs.

Taken altogether the implications are huge.  As of year end, according to ETFGI, a leading provider of institutional ETF Research, there were 2628 US equity ETFs comprising $5.5 Trillion in AUM.  In contrast, the number of bond ETFs was just 496 with assets of just $1.2 trillion.  In both cases the magnitude approaches five-to-one in favor of equities.  If this conversion of assets becomes a groundswell over the next 3 years as I suspect it must, the ratio of AUM should shrink from 5:1 to about 1:1 unless other factors intervene.  When you consider that the global context is that more than 70% of capital markets assets are in fixed income securities rather than equities, this global ETF AUM shift makes sense.

Beyond insurance companies, what are the implications?

  1. Obviously, Blackrock and Vanguard will profit enormously.
  2. Schwab is perfectly positioned to add significant assets to its existing few products and create more so that their customers could quickly help them meet the threshold criteria.  Looking at current customers also makes me think that FlexShares at Northern Trust could be able to take advantage of this move.
  3. SSgA’s SPDR brand is the wild card here.  Fixed income ETFs have simply not been a focal point for them until now.  To what extent are they in a position to change that quickly?  It will be interesting to see.
  4. Fee wars among all providers are likely in my opinion.  Most products are tightly priced in the single digits of basis points but TIPS, LQD and a few other iShares may have some wiggle room.
  5. For all investors, more assets mean more liquidity in Bond ETFs.  That is a very positive and could even become a self-feeding juggernaut.
  6. Hedge Funds should find it easier to implement long-short strategies intrinsic to global macro and other arbitrage products.
  7. The three groups of products that this does not assist are active ETFs, preferred stock ETFs and equity ETFs.
  8. The expected windfall of liquidity means little for most clients of financial advisors because the combination of relatively long durations and low yields-to-maturity (YTM) compared to high durations make the two top ETFs, AGG and BND relatively unattractive now.  Long-term bond prices are expected to fall as dramatically as rates are expected to rise.  On a real-return basis, the expected rise in inflation could make long bond investments even less attractive.

On this last point, there is an ETF that Ron DeLegge, Founder of ETF Guide, just discussed on a recent podcast: PFLD as an alternative to AGG.  Upon investigation I agree it is worth a long look.  PFLD is The AAM Low Duration Preferred & Income Securities ETF.  It aims to provide higher annual income streams with lower implied interest rate risk (as measured by duration) than total bond portfolios.  During the past 12 months, in a similarly fearful environment, PFLD recorded a total return of +2.82% as compared with -3.56% for AGG.  Two bonuses are that PFLD pays monthly dividends, and its preferred stock income is classified as qualified which may be taxable at a lower rate for some investors.  One detriment is a high expense ratio of 0.45% as compared with 0.04% for AGG although in recent periods, its returns have more than compensated for its fees.  To clarify, PFLD will not benefit from the projected windfall of insurance company assets but is included as an attractive alternative to bond ETFs in the current yield, interest rate risk and inflationary environment.

In summary, it is generally not easy to predict a seismic change in the capital markets.  In this case, I am compelled to do so.  Be prepared to watch the asset growth in bond ETFs significantly outpace asset growth in equity ETFs during the next three years.

By Herbert Blank, Senior Quantitative Analyst, ValuEngine Inc

Axiomatic Solves for “Social” ESG Signals

Axiomatic Data’s new ESG data elements facilitate the ranking and analysis of companies in the Russell 3000 for the Social “S” component of ESG. This legally mandated, company-reported data answers the question, “On a relative basis, how well are employers in the Russell 3000 treating their employees?”

  • There are numerous sources of data for the Environmental and Governance components of ESG. There are relatively few sources of data that examine the Social component. Using data attributes from Form 5500 employee benefit plan filings, Axiomatic Data has built consistent and auditable metrics that address the Social component of ESG.
  • Axiomatic Data ESG metrics gleaned from Form 5500 filings include:
  • Salary Boost: the level and growth of company contributions per active employee in a defined contribution pension plan, e.g., 401k plan.
  • Salary Deferral: the level and growth of participant contributions per active employee in a defined contribution pension plan, e.g., 401k plan.
  • Pension Plan Participation Rate: the percentage of employees participating in a defined contribution pension plan, e.g., 401k plan.
  • Consistent, material Axiomatic Social factors for public and private companies are used to identify better-governed socially responsible companies and can be used to create exclusion lists of companies with poor ESG rankings within their peer groups.

As an example, certain sectors, such as Technology, employ mostly white-collar workers and will likely have superior employee benefit packages and higher pension plan contributions.

Other sectors, such as Accommodation and Retail Trade will offer employees less attractive benefits. Axiomatic Data facilitates the comparison of company-specific employee benefits between and among industry sectors and groups.

Academic research has shown that these “Social” metrics are highly correlated with corporate performance proving the thesis: Companies that treat their employees well function more effectively and outperform the market benchmark.


Axiomatic Data’s ESG data elements facilitate the ranking and analysis of companies in the Russell 3000 for the Social “S” component of ESG. This legally mandated, company-reported data answers the question, “On a relative basis, how well are employers in the Russell 3000 treating their employees?”

Axiomatic Data’s ESG signals extracted from Form 5500 filings fall under the following categories:

  1. Salary Deferral – participant contribution per employee to pension plans.
  2. Salary Boost– employer contribution per employee to pension plans.
  3. Pension Plan Participation Rate– percentage of employees participating in a defined contribution plan.

New CEO at Top Ranked LyondellBasell Inherits Cracking Good Results

Interim CEO Ken Lane (53) will lead LYB for the coming months after former CEO Bob Patel left last month to become the CEO of W.R. Grace & Co., the most recent addition to the Standard Industries conglomerate.   We like that, similar to his predecessor, Interim CEO Lane has been LYB’s EVP for Olefins & Polyolefins for the last 3 years.   The Interim CEO is coming in at a benign time in the cycle with rising oil prices, strong financial performance, and an increased dividend (4.5%) and new share repurchase authorization.  The Board has hired Peter E.V. Vanacker (55) to take over as the full-time CEO by or before June 2022 but a definitive start date has not yet been set.  Currently, Vanacker is the President & CEO of the Neste Corporation, a TTM €12 billion sales refiner/recycler of diesel fuels that does business with LYB.  The CEO-elect also has good prior industry experience with CABB Chemicals and others.

Pay & Incentives:   The CEO-elect is receiving an initial pay plan we value at over $16 million in his first year, but we like the private equity orientation of the management pay plan at LYB with executive salaries targeted at 20% or less of total pay and 45-60% of pay linked to performance vesting.  His predecessor’s total pay for 2021 has not yet been formally disclosed but averaged about $16 million over the last three years (~170x the median employee’s).   Management’s annual cash bonuses are determined by 3 good target metrics of: EBITDA 60%, Fixed Operating Costs 20%, and Health & Safety objectives (20%).   The new CEO will also receive an initial time-vesting stock grant worth $2.3 million.   Those RSUs will vest in two tranches on his first two work anniversaries and, like his predecessor, he will be required to hold at least 6x his salary in beneficial share ownership by the end of 2026.  His annual long-term target for equity grants is $10 million and those will be comprised of a good mix of performance vesting PSUs (50%), stock options (25%), and time-vesting restricted share units RSUs (25%).

Equity Holdings:   Ukrainian born, centa-billionaire, Len Glavatnik’s CBE (now a dual U.S. & U.K. citizen) holding company Access Industries, has been both a pre-and-post Chapter 11 stakeholder in LYB which was over-levered going into the filing and had private equity firm Apollo as its largest creditor at the time (2009-10).   Apollo eventually exited in 2015 at a huge profit but Access remains a major equity holder and Glavatnik’s tenacity has paid off.   Access Industries stake of about 70.5 million shares represents a stake of about 21% and includes rights to nominate up to 3 Directors.   Access has been a consistent seller of its low-basis shares and options since January of 2020 with net proceeds of about $675 million.   Other than Access, former CEO Patel is the largest personal stockholder with a beneficial stake of about 1.2 million shares but that may represent a potential selling overhang as the former CEO’s average cost basis on his vested shares is substantially in-the-money at about $90.

Fiduciary & Other:     LYB is a Dutch incorporated entity and, as such, subject to Dutch Corporate Governance rules.  Board Chairman Jacques Aigrain (67) is a former Partner of Warbug Pincus, global head of M&A at JP Morgan, and former CEO of Swiss Re.  He joined the Board in 2011, became Chairman in 2018, and presides over a 12 member supervisory board.  As Chairman, he receives a retainer of ~$675k annually, a little more than double the other Director’s retainers, and owns about 20k shares.  He is also a Director of the LSE and WPP.

ValuEngine Says Sell in May and Go Away

A common toast has been: “May 2022 be better than 2021!”  However, where the US Stock Market is concerned, most of us would gratefully accept a repeat of 2021’s returns.

The ETF reports on for funds that follow market benchmarks provide a side benefit in writing market analyses.  They are a window to implicit forecasts for 1-, 3-, 6- and 12-month forecasts VE models are making for each benchmark’s ETF portfolio.  This is because the ratings and projections combine bottom-up constituent analysis with analyses of the historical price movements of the ETF in different market environments.  We can use all of this to try to look forward into 2022.

The benchmark indexes and ETFs chosen for this feature are:

  1. The S&P 500 Index representing US Large Cap, the ETF is iShares’ IVV;
  2. The S&P 400 MidCap Index representing US MidCap; the ETF is SPDR’s MDY;
  3. The Russell 2000 Index representing US Small Cap; the ETF is iShares’ IWM
  4. The Russell 1000 Large Cap Growth Index; the ETF is iShares’ IWF;
  5. The Russell 1000 Large Cap Value Index; the ETF is iShares’ IWD;
  6. The Nasdaq-100, constructed as an index using the top 100 non-financial stocks with primary listing on the Nasdaq, but now regarded as the premier US Big Tech Index; the ETF is Invesco QQQ.

Today’s focus is primarily on the 12-month period that will end on December 31, 2022.  On the chart below that is listed as the ValuEngine forecast for 1-year, indicating the next 12 months.  The data in the summary table are all from December 30, 2021, the last trading date of the year that just finished.

Market Index Being Tracked S&P Midcap Russell 2000 Small Cap Russell Large Cap Growth Russell Large Cap Value Nasdaq 100  S&P 500
ValuEngine Rating 3 4 4 2 4 3
VE Forecast 3-mo. Price Return 0.1% 0.4% 1.5% 0.4% 1.5% 1.0%
VE Forecast 6-Mo. Price Return 0.6% 1.1% 3.6% 1.4% 3.5% 2.6%
VE Forecast 1-yr. Price Return -5.2% -2.9% -2.2% -6.2% -2.0% -4.3%
Historic 3 mo. Price Return 7.7% 1.7% 11.5% 7.3% 11.1% 10.7%
Historic 6 mo. Price Return 5.4% -3.0% 12.6% 5.9% 12.3% 11.0%
Historic 1-Yr. Price Return 23.3% 13.5% 26.7% 22.8% 26.8% 27.1%
Historic 5-Yr Ann. Price Return 10.2% 10.1% 21.2% 7.3% 24.2% 14.5%
Volatility 19.6% 21.1% 16.4% 16.9% 17.0% 15.5%
Sharpe Ratio (3-Year) 0.52 0.48 1.29 0.44 1.42 0.94
Beta 1.19 1.22 1.02 1.04 1.02 1.00
# of Stocks 400 2038 503 854 100 500
Undervalued by VE %* 50% 66% 45% 45% 35% 35%
P/B Ratio 2.8x 2.8x 14.4x 2.7x 9.3x 4.8x
P/E Ratio 24.4x 183.2x 39.8x 21.5x 34.1x 27.0
Div. Yield 1.0% 0.9% 0.5% 1.6% 0.4% 1.2%
Expense Ratio 0.23% 0.19% 0.19% 0.19% 0.20% 0.03%
Index Provider S&P Dow Jones FTSE Russell Indices FTSE Russell Indices FTSE Russell Indices Nasdaq S&P Dow Jones


Mkt. Cap Weighting Mkt. Cap Weighting Mkt. Cap Weighting Mkt. Cap Weighting Mkt. Cap Weighting Mkt. Cap Weighting
ETF Sponsor SPDRs by SSgA iShares by Blackrock iShares by Blackrock iShares by Blackrock Invesco iShares by Blackrock

In order to frame our forecasts, let’s look at the ValuEngine rankings that summarize our models’ views on the expected price appreciation of IVV. This is an ETF built to replicate performance of the S&P 500 Index which is the most common benchmark for active management and the focus of most market forecasts.  IVV has a rating of 3 thus predicting average performance among the ETFs in our universe during the next six months.  Given its bellwether status as the market’s proxy, a rating of 3 is the norm for IVV.  The ValuEngine market forecasts for IVV – and thus the S&P 500 – will vary from negative to positive depending on our models’ assessments of the current environment.

Focusing on the S&P 500 column in the four rows containing our forecasts, our models expect the market to navigate the next three-to-six months in modestly positive territory.  However, with a 12-month forecast of -4%, even a six-month 3% gain, our models forecast a mild correction during the second half of 2022.

Are there segments of the market for which the ValuEngine models have a more positive outlook?  There are differences but not very sizable ones.  QQQ, still rated 4 (Buy), gets out least negative price forecast; we predict a dip of just 2%.  IWD, rated 2 (sell), has the lowest prediction for calendar year 2022 of -6%.  For those wondering how an ETF with a projected decline for 2022 can have a “buy” rating, it’s important to understand that ValuEngine ratings are assigned relatively.  Therefore, in this environment, “buy” should be thought of as “above average.”

The ValuEngine models currently favor growth over value with IWF, the ETF based on the Russell 1000 Growth Index rated 4 and expected to endure less than half the decline of IWD based upon the Russell 1000 Value Index.  The models predict one reversal of historic trends.  Although IVV (large cap S&P 500 ETF) has outperformed IWM, (small cap Russell 2000 ETF) consistently and decisively during the past 5 years, IWM now receives an above average rating of 4.  IWM’s largest position is AMC Entertainment, which is also rated 4 (buy).  Additionally, we rate 66% of IWM’s holdings as undervalued, the only one of the six benchmark index ETFs that doesn’t have 50% or more of its holdings rated as overvalued.

Thus, the answer to the perennial question appears to be yes.  No matter which of the major six benchmark categories you choose, our models say you are likely to enjoy positive returns during the first half of the year but if you continue to hold a benchmark index-based ETF for the rest of 2022, you will give back all the gains and lose a bit more.   ValuEngine’s model predictions are fallible as most predictions tend to be.  The models’ projections have tended to predict the direction of the trends more than they’ve been incorrect.  Magnitudes can be more difficult.  In this blog entry that was posted at the end of September, we projected a week positive return for most of the benchmark indexes averaging about +1.5%.  They were indeed positive but the magnitude was correct only for small cap IWM.  The other five benchmark index ETFs fourth quarter price returns ranged from 7.3% for Large Cap Value IWD to 11.5% for Large Cap Growth IWF with the S&P 500 ETF, IVV, between the two with 10.7%.

I’ve seen several well-known strategists, including the venerable Byron Wein, also project a decline or correction of the S&P 500 between -2% and -15%.  That may portend that our forecast will turn out to be accurate, but it could just turn out that misery loves company.  The next question is to determine where investors who lower their exposures to one or more of these six benchmark index categories should re-allocate their dollars.  That will be the subject of our next blog.