Overtime
Mailtime
Good morning,
You all came back from the long weekend refreshed and ready to go.
If you’re new around here, the last Overtime report of each month is Mailtime, which is paid subscribers’ chance to send in chart requests and market-related questions.
We had some really great participation this week, thanks to everybody who sent in questions.
Let’s see what is on your fellow readers’ minds!
Questions
What are the charts showing for developed international and emerging markets stocks? Especially relative to US stocks?
Foreign developed isn’t a bad chart, and above you can see EFA trying to break out of a consolidation similar to what RSP and the Dow did last week. However, relative to the US, it’s a harder sell, and I don’t see the case for portfolio exposure. EFA briefly hit 52-week relative lows last week and is below a flat 200-DMA.
For emerging markets, it’s a far different story:
EEM hit a new all-time high yesterday and is above a rising 200-day vs. SPX. The semiconductor theme is a big story here, as EAFE has limited exposure, but EM’s top weight is Taiwan Semi. In addition, EEM has greatly benefited from SK Hynix and Samsung, thanks to its classification of South Korea as an emerging market, a topic discussed in the May 11 Playbook.
The TLDR version is that only emerging markets have a bullish relative trend vs. US stocks, but recognize that it’s highly dependent on the AI/semiconductor trade. In fact, TSM has boosted Taiwan to be a larger weight in EEM than China, while SK Hynix and Samsung are now larger than all of India.
Do have you thoughts on the VLUE (iShares MSCI USA Value Factor) ETF? It increasingly looks and acts like the momentum ETF, and curious how often this happens?
So this is also a semiconductor story, as you can see from the top 10 holdings of VLUE below.
The top four holdings are semiconductors or AI adjacent (CSCO) and Qualcomm and Western Digital can also be found in the top ten. It’s a little ironic that the number 2 holding has a forward P/E of 145, but (at least as of the last rebalance) these all must have screened as cheap using the ETF’s methodology (criteria below):
I don’t have a definitive way to view how often this happens but the fund is having its best two months on record (+33%), so it’s safe to say this is extremely rare. I will just flip the question on its head a little bit and tout this more as a win for momentum than value. Momentum can be whatever is working in the market, whether that’s energy stocks, defensive utilities, or high-flying semiconductors.
Since VLUE’s inception in 2013, the fund is up just 292% vs. a 376% gain for the S&P 500 (price returns only). MTUM, the iShares MSCI USA Momentum Factor ETF, is up 515%.
Chart Requests
AMBQ: Ambiq Micro
