Jim Niedelman:
Time, once again, for this week’s edition of 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Great to you as always, David.
David Nelson:
Thank you, Jim. You as well.
Jim Niedelman:
Well, after a great year for momentum stocks last year, value stocks have been the winners in 2021 so far. That looks like it might change for reasons that aren’t so obvious to a lot of people. What are your thoughts about that?
David Nelson:
Well, certainly it’s been a great ride as far as for momentum stocks. For those that don’t know, what that basically saying is momentum is just implying whatever’s really working at that point in time. And so there’s exchange traded funds that are out there, that invest with a style. So they’re trying to find the stuff that’s working. And over the last five years, that stuff that’s been working has been pretty much technology. And so it’s been a heavy technology tilt as far as to these portfolios. However, if you look at this year, momentum stocks across the board, if you look at the indexes, it’s up roughly 5%. Value, on the other hand, that really hasn’t done anything for a number of years, is up closer to 20% as far as year-to-date. So a big, big difference as far as between the two. And we see big, big shifts that are taking place as far as in the space.
Jim Niedelman:
What do some of those specific changes look like?
David Nelson:
So I brought along a really nice graph. I know I talk about this all the time. Really nice, but this one is a great visual here. I want folks to focus on the top level, which is the financials and the technology. And what you’ll see there is the old weight, which is implying that if you went back, these portfolios typically reconstruct themself as far as twice a year. So they look at what’s happening currently, and then they adjust based on that. And so what we’ve seen as far as just the last shift that took place roughly a week ago is that financials, the old weighting was only about 1% that was in financials. Today, it’s 33%.
David Nelson:
So again, financials would be banks, insurance companies, things of that nature. They’ve really been working. Now, let’s look at the other extreme, which would be technology that under the old weight, in other words, the left there, that was 40%. That’s now down to 17%. So what this is telling us is that these portfolios have invested in momentum type offerings, now today look a lot differently than they did a week ago. In other words, they have a ton of money in financials and they really cut back as far as on technology.
Jim Niedelman:
Well, what do you think people watching at home and thinking about their investments should take away from that?
David Nelson:
Always a great challenge, and certainly in this type of venue, we can’t give any specific advice and we try to help people as best we can as far as to move in the right direction. Clearly, if you look at momentum stocks today, it’s probably a winning strategy. Don’t know for sure, but it’s probably going to be. And the reason for that primarily is it’s shifting as was illustrated on the previous chart. Financials are a big part of that. Healthcare has been cut back really dramatically as far as in these holdings. Industrials have picked up. Consumer discretion has picked up. So again, for most individuals, this type of strategy, momentum strategies have historically done pretty well. There’s no assurance going forward, but they’ve done pretty well as far as in the rear view mirror. And we tend to believe that they’re probably going to do okay as far as going forward. So again, it’s something worth considering. Not saying necessarily to do it, but I would take a look at it, certainly most of the people out there.
Jim Niedelman:
David Nelson, thanks so much for the insight.
David Nelson:
Thank you, Jim.
Jim Niedelman:
And those of you at home, any of this discussion, we have it available for you on ourquadcities.com.