Mean Regression

This post picks up from the last, Part 1. The goal is to study and use ETFs based on Russell family of indices to analyze historic and emerging trends and rotations. Last time we looked at ETFs based on US equities segmented based on market-cap. So large-cap equities, mid-cap, small-cap and micro-cap and combination of these. Now we look ETFs based on Value and Growth factors for equities within the Russell 3000 Index. Table 1 below gives the ETF. ETF Description Ticker Russell Index Market-Cap Factor iShares Russell Top 200 Value IWX US 200 Large Value iShares Russell Top 200 Growth IWY US 200 Large Growth iShares Russell Mid-Cap Value IWS US 800 Mid Value iShares Russell Mid-Cap Growth IWP US 800 Mid Growth iShares Russell 1000 Va...

  Since October, 2020, there has been rotations in the stock market with anticipation of the economy reopening. There was movement of funds into small to mid-cap companies, especially the ones that were depressed for major part of the 2020 and would benefit from the reopening. Then in early 2021 when the $1.9T stimulus became a near certainty, and reopening accelerated, inflation fears drove up interest rates resulting rotation from growth stocks to value and cyclical stocks. Monitoring these movements regularly can be challenging. The wide variety of equity indices and related ETFs covering different cross-section and themes within the equity market can be useful. I’ve been researching a family of ETFs that can be used to dissect the US equity universe effectively. ETFs based on Russell family of indices have proved a great tool. Using Bloomberg’s ETF and related functions, I have been analyzing a select set of distinct ETFs. And I intend to present some of these findings in a m...

Morgan Stanley’s podcast on “Realities of Reopening” offered some insightful ideas about the widening spread between S&P 500 performance, and reopening equity classes like the small-cap Russell 2000. Here’s a chart of the two showing a 4% gap. Figure 1. [ Source:  Bloomberg] The “execution risk” of reopening is related to higher prices of restarting the economy resulting from supply shortages of materials, and logistics bottlenecks. This is expected to put pressure on Q1 Earnings and Q2 guidance of companies. A contrasting data point is the record upward guidance revision for Q1 in several years by S&P 500 companies. Revenue guidance numbers much higher but so is EPS guidance, both are higher than anything seen since 2016. Boxplot of Revision Numbers for Q1, 2021 compared to quarters dating back to 2016. The Q1, 2021 EPS and Sales numbers (labeled) are clear outliers with relatively higher numbers. [ Source:  Based on data from Bloomberg] These S&P 500 numbers ...