Investors looking to take a more active approach to profiting from potential rebounds by once downtrodden stocks may have a friend in the Vesper U.S. Large Cap Short-Term Reversal Strategy UTRN.
The exchange traded fund which debuted last September, targets the Vesper U.S. Large Cap Short-Term Reversal Index.
What Happened
With UTRN being just several months old, assessing the long-term efficacy of the strategy is, at this juncture, difficult. That said, the ETF is participating in the broader market's rebound to start 2019 with a January gain of 7.56 percent.
“UTRN provides investors with the opportunity to capitalize on the tendency for stocks which have experienced sharp, short-term declines to quickly bounce back,” according to the issuer. “UTRN attempts to improve on this market anomoly by applying a proprietary methodology – the Chow Ratio - to identify stocks that have the greatest potential for a weekly rebound.”
Why It's Important
The Chow Ratio may not get the attention that other ratios, such as the Sharpe Ratio, the former is established and based on over 25 years of research and testing. Data suggest investors have recently been nibbling at UTRN.
“While still relatively new to the landscape and smaller in AUM terms ($3.4 million), the fund has attracted some near term attention in terms of both trading volume and inflows, reeling in more than $1.1 million thus far in January,” said Paul Weisbruch, head of ETF sales and trading at Dallas-based Esposito Securities, in a recent note.
UTRN's selection universe is confined to the S&P 500 and the fund is rebalanced weekly. Current holdings in the ETF include CBS Corp. CBS, PayPal Holdings Inc. PYPL, Walt Disney Co. DIS and Verizon Communications Inc. VZ.
What's Next
“It is possible for a stock to remain in the index week after week so long as its Chow ratio remains attractive enough to justify it,” said Weisbruch. “If the Chow ratio increases (which is undesirable), it is possible that another stock within the S&P 500 will replace it upon a weekly re-balance.”
A cornerstone of the Chow Ratio is that a stock's short-term movements, say daily or weekly gyrations, do not always accurately reflect the market's long-term fundamental expectations, positive or negative, for that stock.
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