On August 25, 2022, we published Five for Friday: Factors for Success. The screen used our internal factor analysis tool to see which stock factors are most likely to hold up best in a market decline. As we wrote in the article:
“Where should I put my money if we get another leg down in the market?”
From August 25th through September 16th the S&P 500 fell over 8%. How did our screen do?
For starters, the high dividend yield factor was the third best relative performer factor, beating the S&P 500 by 2.48%.
The screen was simple and selected the ETF’s five largest holdings. The five stocks fell 2.5% on average, handily outperforming the S&P 500.
This week we take the opposite approach. With the market trading lower over the past month and many technical indicators pointing to oversold conditions, we select the top five holdings from the factor that has been the poorest relative performer year to date.
We chose not to select the two worst performing “factors”- disruptive tech and semiconductors as they are more akin to industries and not factors. Mega Cap Growth, represented by Vanguard’s Mega Cap Growth ETF -MGK lost 8.64% to the S&P 500 year-to-date and is the worst-performing factor on a relative basis.
We chose the top five holdings from our proxy ETF, MGK, as our five stocks this week. As the top holdings in the factor ETF, they should benefit from passive-investing inflows into the ETF. All five are well-known large-cap stocks and comprise four-fifths of the infamous FAANG acronym. The FAANG stocks are among the world’s largest stocks and led the market higher last year. In our selection, Tesla is MGK’s fourth largest holding and replaces the F in FAANG (Facebook/Meta) with a T. Netflix is also excluded, and Microsoft, widely considered a FAANG stock, is included. Below are our TAAMG stocks that should outperform if the market rallies.
Company Summaries (all descriptions courtesy SimpleVisor)
This report is not a recommendation to buy or sell the named securities. We intend to elicit ideas about stocks meeting specific criteria and investment themes. Please read our disclosures carefully and do your own research before investing.
Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research.
Follow Michael on Twitter or go to 720global.com for more research and analysis.
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