With another important earnings season just around the corner,
profit reports once again look to come into focus for the market.
This could be especially important this quarter as the economy
has seen decent-but not amazing-data in a number of key market
Furthermore, the panic over the Fed's new plans for QE
tapering appears to be over, allowing investor to once again
focus on profits and earnings outlooks to move stocks. Yet while
some investors are likely pleased that the Fed will not be much
of a factor over the next few weeks, it is worth pointing out
that this earnings season might be sluggish.
Expectations for earnings growth have now fallen into negative
territory, a far cry from the 3.9% growth that was predicted for
Q2 earnings at the start of April. In this type of sluggish
environment, and given the broad Fed concerns hanging over
stocks, it may be best to focus on profitable companies and tilt
more assets towards these strong-earning firms.
One way to do this is by looking at top ranked
which have a focus on profitable companies with strong earnings.
A new system to rank ETFs in these types of categories is the
Zacks ETF Rank which we have briefly highlighted below (see
Top Ranked ETFs
About the Zacks ETF Rank
This technique provides a recommendation for the ETF in the
context of our outlook of the underlying industry, sector, style
box, or asset class. Our proprietary methodology also takes into
account the risk preferences of investors as well.
The aim of our models is to select the best ETFs within each
risk category. We assign each ETF one of five ranks within each
risk bucket. Thus, a Zacks Rank reflects the expected return of
an ETF relative to other ETFs with similar level of risk (see
Zacks ETF Rank Guide
Using this strategy, we have found an ETF which is Ranked 1 or
'Strong Buy' with this model which we have discussed in greater
detail below. This fund tilts towards companies with large
amounts of earnings, and so could be a safer-but still very
broad-play on the U.S. markets during this uncertain time:
WisdomTree Earnings 500 ETF (
tracks the WisdomTree Earnings 500 Index which comprises
predominantly of large cap stocks having positive earnings in the
preceding four quarters. The ETF offers a core fundamental play
on the large cap space as it is weighted on the basis of
The ETF was launched in 2007 and since then has been able to
amass an asset base of $73 million. This can be considered quite
unpopular especially when compared to other ETFs from the large
cap space. One of the major reasons for its lack of popularity is
its comparatively high expense ratio of 28 basis points. This is
much more than what most large cap ETFs charge, with several
charging less than 10 basis points a year.
Still, the ETF has managed to earn its keep and outperform
broader markets over the past two years. In this time frame, the
fund has added 22.4%, compared to a a return of 20.9% for the
SPDR S&P 500 ETF (
The ETF is a low risk product as it exhibits a lower realized
volatility than other large cap ETFs. It has an annualized
standard deviation of 16.58%. For the same time frame the S&P
500 Index has an annualized standard deviation of 18.52% (see
Is This a Better Large Cap ETF?
The ETF has spread out exposure across all
sectors with maximum allocation to Information Technology
(19.17%), Financials (16.71%), Energy (12.58%), Consumer
Discretionary (12.10%) and Healthcare (11.16%).
As far as individual holdings are concerned, the ETF spreads
its assets across 500 stocks with 23.87% of its total assets
invested in the top 10 holdings. EPS has a Zacks ETF Rank of 1 or
Strong Buy with a 'Low' risk outlook, suggesting it could be a
solid choice for this earnings season and beyond.
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WISDMTR-ERN 500 (EPS): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
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