Materials ETF Quietly Assumes Sector Leadership

The Materials ETF has avoided the financial headlines and quietly assumed the market’s sector leadership. It has more than doubled the performance of the S&P 500 over the past year, suggesting some sustainability of the move. Latin America returns to the top of the global rankings after a 10-week absence.

Sectors: Materials climbed two places higher to assume the sector leadership role. Even though Materials has been in the top half of the rankings for all but one of the past 15 weeks, most investors have overlooked its strength. Its relative strength dates back a full year, as the Vanguard Materials ETF (VAW) has surged 49%, more than doubling the 24% return of the SPDR S&P 500 ETF (SPY). The dethroned Financials sector is now in second place, following its 10-week reign at the top. Technology also climbed a notch, helping to push Telecom from second down to fourth. In the lower half, Real Estate and Energy swapped places, and Consumer Staples climbed off the bottom. The defensive sectors are still huddled at the lower extremity, with Utilities and Health Care each slipping lower. The Vanguard Health Care ETF (VHT) has been unable to establish a new high in the past 16 months, has lost about 7% of its value in the past six months, and is now the only one of our sector benchmark ETFs registering negative momentum.

Factors: For the second week in a row, all but two of the factor benchmark ETFs posted momentum declines. Growth and Momentum were the two exceptions this week, although they both remain low in the relative-strength rankings. None of the top five factors has budged from their positions for six consecutive weeks. High Beta has been the only occupant of the #1 slot since the introduction of the Factor Edge 14 weeks ago. Growth was the only factor to climb in the rankings this week, moving from 10th to seventh. Its rise pushed Quality, Momentum, and Low Volatility all lower, while Yield remains on the bottom.