Wells Fargo sees defensive names win in MSCI's index rebalance
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MSCI's quarterly rebalances are set to start this week and Wells Fargo sees energy and defensive names as the big winner. The MSCI USA Momentum Index, which is mirrored by the iShares Edge MSCI USA Momentum Factor ETF (BATS:MTUM), will start its rebalance period on May 26 close.
Wells Fargoâs estimates indicate a greater than 75% turnover, which would be more than that of the previous yearâs 68% turnover.
Wells Fargo stated: âBy our analysis, defensives (health care + staples + utes = 50%) and energy (19%) are the new Mo'. Factor-wise, the momentum holdings are expected to re-align with value and take on old-school defensive traits: lower price volatility, more stable earnings, larger size, and steadier dividends.â
Wells Fargo sees additions to include UnitedHealth Group (UNH), Exxon Mobil (XOM), along with others and removals of names like Microsoft (MSFT), NVIDIA (NVDA) and others.
In a Wednesday note, the financial institution also said: âWe estimate the notional two-way flow related to the rebalances will be ~$45B. May 31 will likely be a massive liquidity day due to the rebalance and traditional month/quarter-end activity. For many PMs, this will be a day to reposition. The liquidity may address the weak hands, setting up equities for a better June.â
In broader market news, stock index futures are a little lower on Wednesday as market participants wait for the details of the last Fed meeting.