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Detecting turning points

rcobo

10/03/2021

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In our previous post, Fundamental shifts in factors, are they here to stay?, we warned about a possible trend reversal in the relation between Invesco S&P 500® Equal Weight (RSP), iShares MSCI USA Value Factor (VLUE) and SPDR® S&P 500® Trust (SPY) exchange traded funds. We are going to update that post, adding three months and a week (from November 30th, 2020 to March 5th, 2021).

We had seen how SPY had outperformed both RSP and VLUE since 2004:

RSP, VLUE ETFs Relative Performance to SPY since 2014

We had seen also how RSP and VLUE outperformed SPY. What happened then? From November 30th, 2020 to March, 5th 2021, RSP and VLUE raised 11.9% and 16.9%, well above than SPY that scaled 6.4%. In particular February 2021 was the best month in the RSP / SPY ratio since 2014. Also January and February 2021 were the second and third best months in the VLUE / SPY ratio:

RSP vs SPY Monthly Returns / 
VLUE vs SPY Monthly Returns

In recents weeks, new “candidates” to turning points emerged. For example, iShares MSCI USA Momentum Factor (MTUM) against SPY or ARK Innovation (ARKK) against Invesco QQQ Trust (QQQ) since the beginning of 2020 show positive behaviour, but from highs on mid February we have seen a retracement:

MTUM vs SPY, ARKK vs QQQ ETFs Relative Performance since 2020

We are seeing a small corrections in the ratios or a significant turning point?

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