After the record first half divergence in performance between the market capitalization weighted SPDR S&P 500 ETF Trust (SPY ) and the iShares Russell 200 ETF (IWM), the latter came to life during July, outperforming by a 9:1 ratio. Despite this convergence, year-to-date, the iShares Russell 2000 still lags its large cap brethren by more than 3.00%.The above begs the question as to whether or not it is time to rotate to the mid-cap IWM from the tech heavy SPY; and although we believe that the recent outperformance may continue over the short-term, we would be reluctant to go “all in” as large-caps maintain dominant market share, economies of scale, pristine balance sheets and the financial wherewithal to outspend mid-caps in the AI race.Our concerns with the SPY can be summed up in two thoughts, 1) is the valuation too rich in a slowing economy and 2) will the billions that companies are spending on AI bear fruit in the form of increased cost efficiencies and/or the monetization of Artificial Intelligence.
We believe the above calls for a diversified portfolio, one that is anchored to the SPY, but is increasingly looking at the IWM, international securities and bonds when the opportunity presents itself.
“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
