We present to you our full-length "Weight of the Evidence" quarterly report, going into greater detail across broad asset classes as we move into Q4. Note, this has been approved for financial professionals and non-professionals alike. Download the report HERE

As the world gets more interconnected with our technology each and every day, watching how and who you interact with online has never been more important. October ushered in the start of cybersecurity awareness month, highlighting the ever growing need to watch how you and your clients interact online. Our online security isn’t the only thing we want to be strong… finding strong options fit for investment in our investment portfolio is of utmost importance as we move into the final quarter of 2025. Using NDW’s fund score and technical attribute ratings, we can hone in on a handful of technically strong cybersecurity options that might help “protect” your portfolio in October and the rest of Q4.

Starting broadly, we will provide technical commentary for two cybersecurity focused funds, both of which score strongly according to NDW’s fund score methodology. Both the First Trust NASDAQ Cybersecurity ETF (CIBR) & Amplify Cybersecurity ETF (HACK) hold strong scores above 5.20 (out of 6.00). Both funds trade on PnF buy signals on their default charts, sitting at all time highs at the time of this writing on 10/6. In terms of technical landmarks to keep an eye on, both CIBR and HACK offer an initial level of support ~6-7% below current levels… also around/above a range of old resistance, a net positive as demand appears strong.

As the cybersecurity sector is relatively niche, there will be some general overlap between the funds and their underlying holdings. The largest percentage holding in both CIBR & HACK comes from Broadcom (AVGO), which makes up nearly 10% of total weight across each fund. AVGO is a high attribute name, earning a 4/5 TA score to open October. After taking a bit of a breather off all-time chart highs at $372, the stock returned to a PnF buy signal on 10/2, now sitting without technical resistance until that point. Towards the downside, buyers have stepped in a handful of times at $328, offering some localized support to look towards in the near-term.

As we do each quarter, today we update our U.S. and International "Smart Beta Quilts" and Factor Studies through the third quarter of 2025. Before the term “factor investing” became commonplace within the financial community, there were two main "factors" that advisors were already using within client portfolios: growth and value. Advisors commonly used various market capitalization sizes or some form of style rotation, but beyond that, there was not a lot of access to many of the security selection processes that are available today. The term "factor" is broad, and there is a healthy debate about what should fall into that category. Arguably, any indexing strategy in which securities are chosen systematically, based on measurable attributes, to produce superior returns over the asset class would qualify. Still, that covers a wide range and is a vague definition, but we can agree it goes well beyond "growth" and "value."

US Equity Smart Beta

Other factors commonly accessible through ETFs today are momentum, low volatility, quality, dividend achiever, and buyback strategies. All these factors are designed to pinpoint a certain investment theme within the marketplace, and systematically allocate to that theme. For instance, the “low volatility” factor is represented by the Invesco S&P 500 Low Volatility ETF (SPLV), a fund that seeks exposure to the 100 stocks with the lowest volatility in the S&P 500. Most of the factors examined offer better performance than the benchmark, the SPDR S&P 500 ETF (SPY), through certain durations. However, no single factor ETF has been the best performer every year, or even most of the years...nor has any single factor ETF been the worst performing every year or most of the years.

Factor Return Observations (US Equities)

• Buyback stocks had a strong third quarter, gaining 8.3% in Q3 to overtake growth as the best performing factor this year. Buyback and growth are now the only two factors to outpace the benchmark this year

• The core of the market continued to dominate as mega cap names carry the index higher The benchmark has found itself in the top half of the rankings in each of the last three year, with 2017-2020 being the only other instance of prolonged benchmark strength.

• Risk-off areas of the market continue to underperform the index, with dividends and low volatility sitting in the bottom two spots this year while value is 2.1% behind the index. If dividends remain at the bottom this year, it would be the first time a factor has seen back-to-back bottom years.

• Despite some outperformance from risk-on areas, there’s been a tight 13.5% spread between the best and worst performing factors. That is far below the average of 22.7% and is on pace for the lowest spread since 2018.

It is About Time in the Factor, Not Trying to Time the Factor

Our goal with the research above is to illustrate the range of available factors and the necessity of discipline in applying these factors over time. We want to promote “good behavior,” as it relates to any investment process or product. This is perhaps the most important observation from the data above; we illustrated the outcomes generated by a few common behaviors using the same investment universe, and the outcomes vary dramatically.

There are the “buy and hold” outcomes, which show buyback and growth as the best performers, but we also know inherently what comes with a buy and hold commitment to only one group. 2022 was indicative of that difficulty, with growth underperforming most other areas. While not visible above, 2000-2002 were tough years for growth, tougher than many could endure. Buyback stocks have turned around in recent years, with it in the top half of groups in five of the last seven years, becoming the largest growing factor over time.

Another approach is to equal weight all seven factors in a portfolio and rebalance that portfolio once a year. This gives you a baseline that notably underperforms the benchmarks over the last 10+ years. We also looked at the hypothetical behavior of buying the best-performing factor from the previous year and holding that factor for the entire next calendar year; we called this “Return Chasing,” and while no portfolio manager markets themselves this way exactly, it is an emotional bias that creeps into many investors’ psyches.

This “Return Chasing” portfolio tracks a hypothetical investor who sees that no strategy could beat the benchmark last year, so they just buy that factor for the next year. As mentioned previously, this has only “worked” in back to back full calendar years from 2012-2013… and while growth is doing well so far this year, return chasing still hasn’t worked quite well over our back test. On a cumulative basis, return chasing has massively underperformed not only the other “strategies,” but also what buying-and-holding almost any other factor would have provided. The factors themselves are not the problem, as many create substantial alpha relative to the market. Bad behavior can create bad returns out of good products, and constantly chasing last year’s best-performing factor often exemplifies that reality despite its successes so far in 2025.

The opposite of return chasing is the contrarian approach, which buys the worst-performing factor from the previous year and holds it for the subsequent calendar year. The “Contrarian Switching” portfolio illustrates what is missed when an investor dumps a factor for having a bad year. A good stock can become a bad stock and remain such for a long time, so a good factor is less likely to stay perennially out of favor because it should have a process of systematically eliminating bad stocks – this is evidenced by the outperformance of the “Contrarian Switching” strategy, which has beaten the "average" portfolio of equally weighted factors.

International Equity Smart Beta

These strategies can also be applied to factor representatives from international equities, which, as we can see below, demonstrate similar tendencies to their domestic counterparts. Note that the representatives below are only for developed market equities, as there has not been enough historical representation of factor exposure in emerging markets to represent a robust examination.

Factor Return Observations (Intl Equities):

• All the international groups find themselves in the black so far in 2025… and by a wide margin. Dividends are lagging the pack, but are still up more than 15%, which would be the largest recorded laggard gain since 2009.

• Developed markets continue to show a preference for value over growth stocks. Value outpaced growth by 5% last quarter, bringing its outperformance to 11.7% through Q3.

• Momentum works well in environments of stability, and the strength of factors has been consistent in 2025. The top and bottom half of groups this year are the exact same factors as last year, with only some slight deviations from 2024.

Daily Option Ideas for October 6, 2025