BVA Value Momentum Portfolio Strategy Year-to-Date Performance as of December 31, 2020

 Bull Valley Advisors Value Momentum Portfolio Strategy

Year-to-date as of December 30 2020, the BVA Value Momentum Portfolio Strategy return is up 251.43% compared to a gain of 18.76% for the Morningstar US Market Index.

Since the start of the portfolio on January 2, 2019, the BVA Value Momentum Portfolio Strategy return is up 257.54% compared to an increase of 23.67% for the Morningstar US Market Index.

US Major Stock Market Index ETFs

DIA Dow Jones 30 Industrial Average (+9.61%). SPY S&P 500 (+18.37%}. QQQ NASDAQ Index (+48.62%). IWM Small-Cap Index (+20.03%). VIXY CBOE Volatility Index, or Fear Gage, (+10.54%).

US Stock Market Sector ETFs

XLC Communication Services (+26.91%). XLY Consumer Discretionary (+29.63%). XLP Consumer Staples (+10.15%). XLE Energy (-32.51%). XLF Financial (-1.67%). XLV Health Care (+13.34%). XLI Industrials (+10.96%). XLB Materials (+20.52%). XLRE Real Estate (-2.11%). XLK Technology (+43.61%). XLU Utilities (+0.57%).

Global Stock Market ETFs

ACWI all-country World Index (+16.33%). ACWX all-country World Index ex US (+10.29%). AAXJ all-country Asia ex Japan (+23.36%). EWJ Japan (+15.41%). EZU Eurozone (+7.6%). ILF Latin America 40 Index (-11.68%). EEM Emerging Markets (+17.03%). 

Commodities ETFs

DBC Commodity Tracking Index (-7.84%). DBA Commodities Agriculture (-2.54%). USO United States Oil (-67.79%). DBB Base Metals (+15.53%). IAU Gold (+25.03%). BDRY Dry Bulk Shipping (-50.16%).

Bond Market

In the bond market, the 10-year US Treasury interest rate went from 1.505 on January 1, 2020 to 01.038 on January 1, 2021.

Currencies

In currencies, the US Dollar DXY Index went from 96.50 on January 1, 2020 to 89.94 on January 1, 2021.

2020 Year-End Review

U.S equity markets rebounded off first-quarter lows and kept climbing in 2020’s fourth quarter, making for a strong full year. The passage of a second coronavirus relief bill and the rollout of COVID-19 vaccines strengthened expectations for at bounceback from the pandemic, boosting the S&P 500 Index to all-time highs. It ended the year at a record 3,756, up 12.2% in the final quarter and nearly 20% for the year. From the index’s March low, it gained 65.2%. Growth stocks posted the biggest gains, while value continued to underperform.

The rally was concentrated in several sectors. Consumer Discretionary posted the largest individual stock gains last year, particularly in Internet retail. Tech stocks accounted for about half of the S&P 500’s returns.

Other sectors didn’t see such success during the rally. The healthcare sector increased a relatively modest 13.0%. A steepening yield curve boosted financial services in the fourth quarter but not enough to end the year in the black. Energy lost a third of its value after oil prices imploded in the spring, significantly weighing on results for those exposed to it.

Style, rather than size, played the bigger role in 2020. Growth stocks continued their years-long dominance against value, despite value taking a brief lead in the fourth quarter.

Fueling fourth-quarter rallies in riskier corners of the financial markets, as well as some of the sectors that had suffered the most earlier in the year, were aggressive efforts by the Federal Reserve and other major central banks to prop up the global economy in the wake of the economic collapse caused by the COVID-19 pandemic.

The U.S. market index had lost 32.6% from its peak on Feb. 19 to its trough on March 20. But the strong recovery has been relatively steady, aside from declines in October and early November.

Morningstar Fair Value

Is the U.S. market cheap or expensive? The data below tells the story based on Morningstar’s fair value estimates for individual stocks. The data shows the ratio of price to fair value for the median stock in the selected coverage universe over time.

A ratio above 1.00 indicates that the stock’s price is higher than Morningstar’s estimate of its fair value. The further the price/fair value ratio rises above 1.00, the more the median stock is overvalued. A ratio below 1.00 indicates that the stock’s price is lower than our estimate of its fair value. The further it moves below 1.00, the more the median stock is undervalued.

The data covers the period from January 31, 2007 to January 22, 2021.

All rated stocks in the Morningstar Universe:

Current price to fair value is 1.12 and is at the highest valuation since 1/31/2007. The lowest valuation was 0.64 on 2/27/2009.

Valuations by Sector:

Basic Materials is at 1.14. It reached a high of 1.24 on 1/25/2018 and a low of 0.63 om 1/28/2008.

Consumer Cyclical is at 1.21 and is at the highest valuation since 1/31/2007. Its lowest point was 0.64 on 2/27/2009.

Financial Services is at 1.07 and is at the highest valuation since 1/31/2007. Its lowest point was 0.62 on 2/27/2009.

Real Estate is at 1.08.The highest valuation was 1.39 on 1/31/2007. Its lowest point was 0.63 on 2/27/2009.

Consumer Defensive is at 1.06. The highest valuation was 1.10 on 12/31/2020. Its lowest point was 0.69 on 2/27/2009.

Healthcare is at 1.12 and is at the highest valuation since 1/31/2007. Its lowest point was 0.64 on 2/27/2009.

Utilities is at 1.03. The highest valuation was 1.10 on 12/31/2020. Its lowest point was 0.75 on 2/27/2009.

Consumer Services is at 1.08. The highest valuation was 1.11 on 5/31/2017. Its lowest point was 0.67 on 2/27/2009.

Energy is at 0.75. The highest valuation was 1.27 on 12/09/2016. Its lowest point was 0.37 on 3/19/2020.

Industrials is at 1.13. The highest valuation was 1.15 on 1/18/2018. Its lowest point was 0.60 on 2/27/2009.

Technology is at 1.22. The highest valuation was 1.25 on 12/31/2020. Its lowest point was 0.62 on 11/28/2008.

Quarterly Market Outlook

Across our North American stock coverage, only 18% have 4- or 5-star ratings (1 is the lowest and 5 is the highest rating). Analyzing our sector coverage, only energy remains undervalued. At a price/fair value of 1.22, technology remains the most overvalued sector in our coverage, as there are no 5-star-rated stocks and only 12 4-star stocks, accounting for less than 12% of our coverage.

In our view, the market is priced to perfection. We forecast that GDP will rise 4.7% in 2021, 2.9% in 2022, and will return to almost its prepandemic trend by 2024; however, to justify the prices that many stocks are currently trading at, investors appear to be pricing in even stronger assumptions.

Looking ahead, we maintain our expectation that value stocks will outperform core and growth over the long run. Value stocks should benefit from the strong economic rebound in 2021 as economic activity normalizes. Among individual stocks, many mega-cap stocks are significantly overvalued. 

Thank you and please stay tuned for more upcoming reports.

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Len Martinez is a Financial Consultant. Information in the "Bull Valley Advisor” newsletter should not be considered as investment advice or an offer to buy or sell securities. Data is derived from sources considered to be reliable including Morningstar, StockCharts.com, YAHOO Finance, FINVIZ, TipRanks, Investing.com, ECRI, OECD, gurufocus, Crestmont Research, Trading Economics and S2O. Results are not guaranteed. Len Martinez is not an RIA. The data is shown for informational purposes and should not be considered investment advice or an offer to buy or sell securities.