ETF Edge

Here's how ETF investors are positioned for the historically strongest month of the year

How ETFs are looking heading into 2020

The year-end rush has begun.

December, which has been the strongest trading month of the year for the stock market in the past 50 years, started off in the red as weaker-than-expected manufacturing data and a potential pause in U.S.-China trade dealings capped gains for the major averages.

But with economic growth still intact and the setup still largely better than anticipated versus last December's drop, investors aren't shying away from equities.

In fact, as nearly 60% of stocks on the New York Stock Exchange trade above their 200-day moving averages and the exchange-traded fund tracking the small-cap Russell 2000, the IWM, hits a fresh 52-week high, some are simply reviewing their positions, industry leaders say.

With ETFs like the iShares U.S. Real Estate ETF (IYR) and the Consumer Staples Select Sector SPDR Fund (XLP) each up over 22% year to date, some buyers are ensuring they lock in gains elsewhere as 2019 comes to a close.

Chris Hempstead, a top ETF consultant and former head of ETF sales at Deutsche Bank, chalked it up to "portfolio reallocation," saying he doesn't see investors selling the IYR as "an exit" from the real estate investment trust space.

"I just think it's adjustments going into 2020 and some likely gains-taking out of REITs," he said Monday on CNBC's "ETF Edge."

That's characteristic of a December in which thinner trading volumes and healthy investor and consumer sentiments tend to push stocks higher heading into year-end, Hempstead said.

"Stick to what's really happening. Watch the flows," he advised. "There has been flow into value, but performance has been in favor of growth. 2020 is going to be an election year. Gold will come back into favor. It will be volatile. We have been desensitized to tweets. So, I think equities are in play and, definitely, the positioning is [that] equities are going to be in focus for 2020."

Hempstead said the growth segment isn't out of favor even though value stocks have outperformed growth stocks in the calendar quarter beginning Oct. 1, with the iShares S&P 500 Value ETF (IVE) up nearly 6% versus the iShares S&P 500 Growth ETF (IVW)'s roughly 4% gain.

"The three-year, the one-year and the one-month [charts] all favor growth," Hempstead said.

Andrew McOrmond, managing director of ETF trading solutions at WallachBeth Capital, agreed that gold will make a comeback.

"I think gold is back in play, like Chris said, once the year starts," he said in the same "ETF Edge" interview. "There's just no reason to not position yourself for equities. I don't think anyone's going to take a risk [in] the last three weeks of the year, but I could see gold, … in the first quarter, coming back."

As for the value-growth debate, he said the fact that value stocks such as UnitedHealth Group, Bank of America, Apple and J.P. Morgan are outperforming in the fourth quarter speaks less to investors' preference for value than for another factor.

"I just think it's money going to quality," McOrmond said. "It's people ... [who] have gains already. Why take any risk going into the end of the year?"