Michael Douglas reminds us that risks can lie where we expected safety and come in various forms. Only ETF Globalsm breaks out Risk and Reward Ratings and while our predictive Green Diamond Reward Ratings are exclusive to equity ETFs, all exchange traded products get ETFGsm Red Diamond Risk Ratings that you can see on their own page under the Analytics button. Beyond the composite rating found on our tear sheets, we score all products in six separate risk categories which are each a proprietary composite of industry standard metrics.
Half of the Risk Rating is weighted towards price risks such as volatility, deviation and the home country of a fund’s constituents. The other half addresses the integrity of a product using metrics relating to its structure, liquidity and efficiency. The bottom of the page shows that the price risk scores are weighted towards volatility and deviation which include our proprietary ETFG Implied Volatility Score and emphasize downside deviation over standard deviation. Country Risk is an example of how we break out certain components from our Quant model in our Diamond models. On the integrity side, structure addresses how a product is comprised, using swaps for example is more risky than futures and concentrated funds carry higher risk than more diversified ones. The sponsor’s strength is also incorporated in structure risk. Liquidity comprises various trading metrics like bid/ask spreads and average volume as well as our proprietary Liquidation Watch List. Lastly, efficiency looks at tracking error and expense ratio.
It being Tuesday, you might want to indulge your more risky proclivities. Clicking twice to sort the volatility column in descending order will display products to get the best ride out of a rally. If you are the straight and narrow type, click deviation once to find those products with the lowest deviation risk or click any column once or twice to sort in either order. Entering a term in the search box will bring up all products that contain it in their name. In a market where bad news is good it is more important than usual to keep a close eye on the risks in your portfolios. Quant’s top 10 today have Risk Ratings ranging from Taiwan’s 10th place EWT on the low end scoring 2.59 to 6th place GDX carrying the highest risk with 5.41. As always send any questions to firstname.lastname@example.org.