Tuesday, May 15, 2007

IVE – An ETF for a Contagious Market

As the US equity markets struggle to keep pace with their Asian bubble counterparts, concerns of an overheating appear to be justified. Yet, M&A activity has never been frothier. A market melt-up can just as easily develop (as if China wasn’t already there) as yet another seemingly out-of-the-blue nasty correction. For reasons noted in yesterday’s weekly report (modest subscription required), Large Cap Value (IVE) appears to be very well suited for either occurrence.

In the melt-up scenario, hedge funds may be pressured into shifting more funds out of the underperforming Smids and into the better performing large cap value sector (see 1 year chart above). Contrarily, in a meltdown environment, the lower beta/higher quality sectors (IVE’s beta is .93) should weather the storm better than higher risk issues (again, see chart).

Investment Strategy Implications

Whether there is a market melt-up or another spring market swoon, IVE appears to have the odds tilted in its favor regardless of which contagion sweeps over the markets.

Disclosure note: IVE is owned in accounts under Blue Marble Research management. No shares are owned by Vinny Catalano nor any members of his family.

No comments: