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The ETF Portfolio Strategist: Small-Caps Rebound, Bonds Rally

By James PicernoStock MarketsAug 01, 2021 01:29AM ET
www.investing.com/analysis/the-etf-portfolio-strategist-smallcaps-rebound-bonds-rally-200595246
The ETF Portfolio Strategist: Small-Caps Rebound, Bonds Rally
By James Picerno   |  Aug 01, 2021 01:29AM ET
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Signs of life in small caps

For a second straight week, small-cap shares rallied. The iShares Core S&P Small-Cap ETF (NYSE:IJR) rose 1.7% for the week (through July 30), posting the strongest gain for our standard global opportunity set.

GB 16 ETFs Ranked By Weekly Returns
GB 16 ETFs Ranked By Weekly Returns

This could be the start of a revival after two months of relatively weak trending, but we’re not on board yet. For starters, the trend profile for IJR still looks shaky. Although small-caps are outperforming large caps (VTI) this year, IJR’s performance in 2021 has been erratic.

It doesn’t help that our in-house momentum indicator is in the gray zone for this fund. As shown in the table above, IJR’s MOM score is essentially neutral with a 60 print. That’s not horrible, but I’m inclined to stay cautious on the ETF for now. For details on all the strategy rules and risk metrics, see this summary.

IJR Weekly Chart
IJR Weekly Chart

Overall, it was a mixed week for asset classes on a global basis. Europe stocks had a good week—Vanguard FTSE Europe Index Fund ETF Shares (NYSE:VGK) rallied 1.0% and was posting a strong 90 MOM score, which suggests further gains are likely in the near term.

VGK Weekly Chart
VGK Weekly Chart

US bonds continued to rally, thanks to the persistent but slowing decline in interest rates. The benchmark 10-year Treasury rate again slipped for the week, dropping to 1.24%, close to the five-month low set earlier in the month. Thursday's substantially weaker-than-expected (but still strong) second-quarter GDP report helped prop up bond prices, and thereby drive down rates, albeit marginally.

UST10Y Weekly Chart
UST10Y Weekly Chart

In turn, iShares 7-10 Year Treasury Bond ETF (NYSE:IEF) rose for a fifth straight week, closing near its highest level since February.

IEF Weekly Chart
IEF Weekly Chart

The deepest shade or red ink last week was concentrated in Asia stocks. The iShares MSCI All Country Asia ex Japan ETF (NASDAQ:AAXJ) fell sharply last week, although the fund recovered a chunk of the losses from earlier in the week. Nonetheless, AAXJ closed down 2.4% at Friday's close for the trading week. Year-to-date, the fund is in the red by nearly 2%. Even worse, AAXJ’s MOM score is a moderately bearish 30.

AAXJ Weekly Chart
AAXJ Weekly Chart

A mixed week for our portfolio strategy benchmarks

The varied performance run for asset classes spilled over to our standard set of strategy portfolios. On the top side: Global Beta 5 EW (G.B5.ew), our newly minted equal-weighted global strategy. Posting a 0.3% weekly gain, G.B5.ew delivered the only profit for the trading week for our portfolio benchmarks.

Note, too, that G.B5.ew is leading year-to-date with a strong 13.2% gain. Is 2021 the year when the long-suffering equal-weight global asset allocation strategy revives? It’s getting easier to think so with each passing week.

Portfolio Strategy Benchmarks
Portfolio Strategy Benchmarks
Global Beta 16 ETFs Sectors
Global Beta 16 ETFs Sectors
The ETF Portfolio Strategist: Small-Caps Rebound, Bonds Rally
 

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The ETF Portfolio Strategist: Small-Caps Rebound, Bonds Rally

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