Wednesday, October 24, 2012

On Monday we reminded you that Quant will not keep you out of a falling market, it is designed to keep you out of the worst parts of one over the intermediate term.  Yesterday’s leaders were not immune to the selloff losing 1.91% on average for the top 25 which is worse than the 1.44% drop in the S&P500.  However, if you have been reading and watching the algorithm’s output you know that China has been Quant’s favorite for quite a while.  Looking at the charts on the tear sheets, you will see the two high ranking China funds, FXI and GXC are still trading near their recent highs.  They got sucked into yesterday’s selling but have been largely immune from the 4% selloff in the S&P 500 over the past month.  The Europe funds we have been writing about, France’s EWQ and Spain’s EWP, are also still trading above their 50 day moving averages as is the pan European FEZ.  Quant is designed to outperform over the intermediate term even if it may not on a given day.

That said, Quant's leaders today include the Vanguard Information Technology Sector Fund (VGT) in second place and the SPDR S&P Metals and Mining Fund (XME) in third.  Yesterday we saw that latter fund to be more economically sensitive than the gold miners fund with which it is often grouped.  We also see emerging markets scoring well with the iShares MSCI Emerging Index Fund (EEM) moving up 14 places into the 5th position on Quant’s relative rankings.  In what could be a telling message the Vanguard Growth Fund (VUG) moved up 34 positions into 13th place as the iShares S&P 500 Value Index Fund (IVE) moved down 14 places to Quant’s 23rd position.  Both moves were largely attributable to the more volatile Sentiment scores but Quant seems to be looking at the  selloff opportunistically rather than fearfully.  But again, it is not a short term trading algorithm so we will see if this message plays out over coming days.

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