Financial Well-being

Invesco S&P 500 *Momentum* ETF (SPMO) seems to have produced *fantastic* total return as compared to Total Stock index. It is an excellent momentum strategy based inexpensive *passive* index fund for *bravehearted*.  It selects top 20% (around 100) companies from S&P 500 market cap index, factoring their last 12 months total return *momentum*. It allocates money based on *market cap* weightage as well as last year's total return *momentum*.  However, as de-risking strategy, it limits any single holding to 9% of portfolio to avoid just single company dominating it. With NVDA driven 45% return in 2024, it has produced annualized 20.57%, 19.83% and 17.77% for 3, 5 and 10 years periods as compared to VTI's  11.65%, 13.83% and 12.88% for same period. If we take out 2024 outperformance from equation, it's returns are similar to growth based IWY. However, above return comes with some added risk. It seems that every year when it outperforms broad market index, it underpe...

I don't like this concept of exchange biased *NASDAQ 100* index which Invesco QQQ Trust ETF (QQQ) follows. It does not make any sense to just *favor* one exchange over other. There are better *large cap growth* options (such as IWY) which don't have such weird bias. QQQ has enjoyed great ride of technology sector revolution of last 15 years. However, technology sector *lagged* quite a bit during previous decade of dot com bust. Having better *diversified* (without any *exchange bias* ) large cap growth fund, such as IWY, is perhaps safer bet.

When it comes to *pure technology* sector based passive index fund, I believe Technology Select Sector SPDR Fund etf (XLK) is pretty solid long term choice. This inexpensive (expense ratio 0.09%) passive etf tracks all the technology sector companies within S&P 500.  It caps weightage of top mega caps to max 50% of it's portfolio to *avoid overconcentration* to just few momentum mega cap technology stocks. Also, no single stock can weigh more than 23%.  Above *checks and balances* in capping individual *high flying* stock weightage was one of the main reasons how this fund outperformed it's index during *2022 technology crash*. It's losses were 10-15% less than it's index that year. It faired way better than it's index in dot com bust years too.  As always, consider limiting your investment into aggressive asset classes, such as technology, to max 20% of your stock equity holdings.

The Roundhill Magnificent Seven ETF ( *MAGS* ) offers *equal weight* concentrated exposure to the “Magnificent Seven” stocks – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.  It's P/E of 29.70 is very similar to broad technology sector, which is good. However, it's projected long-Term earnings growth rate is 10% *poorer* than it's technology index. Perhaps these are *too big* to coninue replicating such earnings growth forever. Even though it has produced oversized return during last 1 year, it's going forward return potential seems to be lesser than it's broad technology index. Also, being so concentrated is also prone to higher risk. iShares Russell Top 200 Growth ETF ( *IWY* ) might offer better diversification and higher earnings growth potential. We discussed it in past here:  https://financial-well-being.blogspot.com/2022/01/iShares-Russell-Top-200-Growth-ETF-IWY-Best-passive-index-ETF-for-large-cap-growth.html However, don't be surprised if,...

I recently added a bank loan bond fund called Janus Henderson AAA CLO ETF (JAAA) to my bond holdings. It's an ultra short duration corporate bond fund typically yielding equivalent to prime minus 1. These are bonds of mostly *AAA* rated leveraged buyout private equity companies who typically finance leveraged buyout by borrowing from banks. Banks then sell these to investors by securatizing them. These bonds are typically for 3-5 years maturity. However they are floating rate and so they are insensitive to interest rate changes. As private equity corporate bond fund, it's certainly riskier bond fund. However, none of AAA rated such loans defaulted during 2001 and 2008 mega crashes. So, I have decided to take my chances with it. It's Yield to Maturity is currently 7.03%. This is one of the highest yield for any ultra short investment grade corporate bond fund with low 0.22% expense ratio. It's not even sensitive to interest rate as coupon is adjustable rate. Updated on J...

Recently came across Fidelity Fundamental Large Cap Core ETF (*FFLC*) which has been very nicely outperforming it's large cap blend index. For example, it's annualized total return of 17% for last 3 years is just *double* of it's index.  Even though it's *actively* managed, it's expense ratio of 0.38% is as low as other inexpensive passive index funds.  It's P/E of 20 is 10% cheaper than it's underlying benchmark. Also, it's long term earning growth potential of 11% is 10% higher than it's benchmark. So, it has 10% more potential for total return alongside 10% discounted valuation. Best of both worlds. It's investment strategy involves investing primarily in equity securities. Identifying *early* signs of *long-term changes* in the marketplace and focusing on those companies that may benefit from *opportunities created by these changes* by examining technological advances, product innovation, economic plans, demographics, social attitudes, and ot...