Momentum Monitoring: 25 August 2020

One of the core tasks at The ETF Portfolio Strategist is keeping an eye on trending behavior -- particularly for the component funds in our benchmark and proprietary strategy portfolios. Here’s a brief look at several of those ETFs, based on prices through today’s close (Aug. 25):

VanEck Vectors Africa (AFK) has long been a weak performer, but the upside persistence in recent months provides a fresh excuse to consider an alternative future. AFK has yet to recover all its losses from the coronavirus crash in March, but its ongoing rise is starting to look intriguing. Recent gains have lifted the fund’s 50-day moving average to a hair below the 200-day average. The fund still ranks as middling via our proprietary momentum score (see data table below), but it’s getting easier to wonder if this slice of the global markets is set to trend higher in the months ahead.

The iShares 7-10 Year Treasury Bond (IEF) has been on our sell list recently for our Managed Risk portfolio (G.B15.MR), as discussed here a few days back. The risk-off signal was triggered by recent drawdowns that exceeded the strategy’s tolerance. Looking through a momentum prism, however, has yet to raise meaningful warning signs. As shown in the table below, IEF still ranks relatively high for upside momentum (0.8 out of a possible 1.0 score, which is the highest print for bullish trending behavior). But recent price action hints that the fund’s bull run of late is tiring. Further weakness in the days ahead could be a catalyst for substantially lower pricing.

One of the strongest momentum performers in our benchmark and proprietary portfolios is iShares MSCI All Country Asia ex Japan (AAXJ). With a maximum bullish momentum score of 1.0 at the moment, AAXJ is on a roll. After today’s 1.2% rally, AAXJ is just pennies below a record high. A key driver of the gains this year: China, which comprises nearly 50% of AAXJ’s holdings. With Chinese shares continuing to post solid upside gains, AAXJ will continue to share in the good fortune.

Here’s a recap of how all the funds in our benchmark and proprietary strategies have fared via The ETF Portfolio Strategist’s momentum ranking:

The momentum ranking is based on the average of ten signals via moving averages and trailing returns and is useful for comparing momentum on relative basis for a basket of ETFs.