S&P 500 Rally May Spark These 3 Under-the-Radar ETFs

Tuesday’s Consumer Price Index created as much bang for the buck that bulls could hope for from an inflation figure that was one-tenth of one percent better than expected. 

Maybe this is the start of the so-called Santa Claus rally. Or perhaps it is just another tempting entry point that ends up as useful as a bag of coal. 

Every investor must determine for themselves what to make of this. Rather than limit research to the usual suspects, this could be a time to try to profit from the ETF industry’s ability to help investors filter and focus within the broader stock market.  

So, as we’ve presented in the past, here are three more exchange-traded funds that are under the radar but that could be worth a serious look as the holiday season approaches. All three ETFs have assets under management of less than $100 million, which means if you have heard of them, you are probably a rigorous ETF researcher. But what the funds lack in size, they make up in appeal for certain investors.

ETFs That Start With the S&P 500  

These three are all subsets of the S&P 500. That is, they start with that full index, and either reduce the holdings through a screening process or re-weight the 500 stocks in the index.  

In recent years, the rich became richer within this index, and now a small number of stocks dominate that portfolio. This has historically been a sign of trouble to come, and thus prompts investors to look around for other ways to “do” S&P 500 investing, other than simply plugging the $391 billion SPDR S&P Trust ETF (SPY) into their portfolio. 

The Arrow Reverse Cap 500 ETF (YPS) takes the S&P 500 and reverses it, by simply weighting the 500 stocks inversely to their market capitalization. That means that the heavyweight tech stocks are among the lower-weight stocks in YPS but are still in the portfolio.  

YPS may stoke the curiosity of those who don’t want to pile into small-cap stocks, but instead want to have more exposure just up the size ladder in a fund where the “cool kids” of the S&P 500 take a back seat to the under-loved “other 400.” YPS, at just $11 million in assets, is one way to pursue that. 

The Syntax Stratified LargeCap ETF (SSPY) is an $88 million fund that made its debut at the start of 2019. Approaching its five-year anniversary, it may finally have a fighting chance, along with non-SPY S&P 500 ETFs like those we’re focusing on here. 

SSPY is part of a set of ETFs run by Syntax, using the firm’s proprietary methodology. Rather than assigning each stock to one unique sector, SSPY may divide a single stock’s classification across multiple sectors. That's because companies’ business functions and risk factors may touch multiple economic sectors.

SSPY aims to smooth that out by reallocating the 500 stocks using this methodology. The current portfolio has a technology stock weighting of just 11% compared with 21% for SPY, indicating how the process avoids over-concentrating in a single sector. 

Those first two under-the-radar ETFs maintain all stocks in the S&P 500 index, but weight them differently. In the case of Invesco S&P 500 Value with Momentum (SPVM), the investment process whittles 500 stocks down to 100 that qualify for the portfolio. This $35 million ETF has been around since 2011, and it combines a proprietary value score with a momentum score to get there. 

These three ETFs are unlikely to hit investors' past performance screens. Big tech stock dominance makes it so that most indexes focused outside of the 100 largest U.S. stocks have likely lagged SPY. 

That is why the current phase of the stock market cycle could be more friendly to them. If the stock market produces winners in a broader fashion, these and many other smaller ETFs may capitalize on that change in trend.