ETF Expert

Unofficially speaking, the markets are now up in February. And while that may not seem like a very big deal… well… it is!

Stocks had essentially lost ground in 4 consecutive months — October, November, December and January. What’s more, February had been down as much as another 3.5% in its first week. At the time of this writing, however, the much-maligned U.S. market had clawed its way back to S&P 1380… a "skohsh" a higher than the January 31 closing price.

Nevertheless, let’s look at the progress that may or may not have been made since the closing low on January 22. In a previous column, I identified the biggest sector moves off the potential bottom.

Right now, though, I am intrigued by size and style. In particular, I am seeing remarkable resiliency in mid-cap growth.

The quickest glance at a chart shows how the iShares S&P MidCap 400 Growth Index Fund (IJK) has responded more favorably than the large-cap S&P 500 SPDR Trust (SPY) since the January 22nd closing low. At the time of this writing, SPY has climbed 5.8% off the bottom whereas IJK has jumped a staggering 9.5%.

For those that appreciate a good "breakout" to the upside, there’s additional evidence. The iShares S&P MidCap 400 Growth Index Fund (IJK) had not been above its short-term moving average in 2008… until now.

Of course, technical pictures hardly tell an entire story. So it is equally intriguing to gather fundamental data. For example, according to Yahoo Finance, the forward P/E for the iShares S&P MidCap 400 Growth Index Fund (IJK) is a surprisingly undervalued 14.23. That is actually lower than the S&P 500’s SPDR Trust (SPY) of 14.28.

Think about how a fundamental analyst might look at IJK’s prospects. You’d want a forward price-to-earnings ratio of less than 16. You’d want to see an average market cap that’s less than $10 billion so that the companies weren’t too big for their britches. And you’d want to see companies with projected 5-year earnings growth in the 15%-20% range.

We’ve already got the low P/E. The average market cap of the companies in this index is less than $5 billion.

So what about the growth scenario? Top holdings like Intuitive Surgical (ISRG), Southwestern Energy (SWN) and Hologic (HOLX) each  have respective 5-year revenue growth rates of 53%, 31% and 18%.

Once again, I wouldn’t expect the stock market to catapult to heights without a great deal of resistance in the next 3 months. That said, the iShares S&P MidCap 400 Growth Index Fund (IJK) may be just the financial ticket for those who wish to prepare for an aggressive dive into the waters.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.