Not Sure About 2018 Santa Rally? Buy 5 Low P/E Momentum ETFs

A consensus carried out from 1950 to 2017 has revealed that December offered positive returns in 51 years and negative returns in 17 years, with an average return of 1.53%, the best seen in a year, as per moneychimp.com. It is believed that a Santa Clause rally normally drives the markets, this time of a year.

What is Santa Rally?

Santa Claus rally refers to the jump in stock prices in the week between Christmas and New Year's Day. There are several factors behind this surge including "tax considerations, happiness around Wall Street, people investing their Christmas bonuses and the fact that the pessimists are usually on vacation this week" as per investopedia.

In fact, some even believe that investors buy stocks during this period to cash in on another strong equity event, known as the January Effect, which takes place soon after. According to Stock Trader’s Almanac, there has normally been “a short, sweet, respectable rally within the last five days of the year and the first two in January.” There has been an average 1.3% gain since 1950, and it has offered positive returns about 75% of the time since 1969, per a source.

Will 2018 See a Santa Rally?

The story this year is little different. Most of the global markets have skidded in 2018. Even the start of December has not been smooth for Wall Street with SPDR S&P 500 ETF (NYSE:SPY) (AX:SPY) losing 6.7%, SPDR Dow Jones Industrial Average (NYSE:DIA) ETF (V:DIA) shedding about 6.7% and Invesco QQQ Trust QQQ retreating about 6.5%, after two horrible months.

With global growth worries resurfacing, no definite solution to U.S.-China trade tensions in sight, constant volatility in the oil patch and a flattening yield curve in the United States invoking recessionary fears at times, it is less likely that even Santa can give enough support to Wall Street this time around (read: Top Sector ETFs of 2018).

Yes, a dovish Fed meeting in December 18-19 and a spike in Christmas shopping can definitely do some wonder for the markets. Still, this kind of uncertain market sentiment might make this Christmas a little dull, curbing the usual momentum of the end-of-season ascent.

What About Low P/E Momentum ETFs?

This is why we suggest tipping toes into the momentum ETFs with a relatively low P/E. Momentum investing is an intriguing idea for those seeking higher returns in a short spell. Momentum investing looks to reflect profits from buying stocks which are sizzling on the market.

Below we highlight a few momentum ETFs with a low P/E to watch out for in the coming trading sessions. The below-mentioned ETFs and stocks have a P/E more or less the 18.28 times P/E of SPY (read: Will Powell, Valuation & Holiday Season Power Momentum ETFs?).

USAA MSCI Emerging Markets Value Momentum Blend Index ETF UEVM – P/E 7.46x

The fund gives exposure to companies in emerging market countries that have higher exposure to value and momentum factors while also maintaining moderate turnover and lower realized volatility than traditional capitalization weighted indexes (read: 3 Bargain International ETFs for Investors).

The data for the MSCI Emerging Market Index also revealed that shares increased 65% in December since 1995, with “a median return of 3.3% - the highest of all the markets in the study.” This makes the bet intriguing.

First Trust Dorsey Wright Momentum & Low Volatility ETF (BS:DVOL) – P/E 12.25x

The underlying Dorsey Wright Momentum Plus Low Volatility Index seeks to track the overall performance of 50 stocks within the NASDAQ US Large Mid Cap Index that exhibit the lowest levels of volatility, while maintaining high levels of relative strength.

Invesco S&P 500 Value With Momentum ETF SPVM – P/E 12.83x

The underlying S&P 500 High Momentum Value Index tracks the performance of stocks in the S&P 500 Index that have the highest value and momentum score.

USAA MSCI USA Value Momentum Blend Index ETF ULVM) – 13.89x

The underlying MSCI USA Select Value Momentum Blend Index is designed to deliver exposure to equity securities of large and mid-capitalization U.S. issuers that have higher exposure to value and momentum factors.

Invesco S&P International Developed Momentum ETF IDMO – 17.07x

The fund looks to track the performance of stocks in the S&P Developed ex U.S. & South Korea Large-Mid-Cap Index that have the highest momentum score. Several developed markets were held up well in the past in December. For example, “in 26 of the past 30 years, the FTSE 100 index has produced positive returns in the run-up to Christmas,” per Fidelity International.

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