Friday, November 30, 2012

Two S&P 500 funds have been occupying the top 25 for most of this month as Quant correctly foresaw the current rally in the US market.  Not too many of us were ready to see that as the post election correction was gathering steam, showing the advantage of a non emotional quantitative model to help in your investment selections.  Today, one of those funds has garnered Quant’s top rank.  However, it is not the SPDR S&P 500 Fund (SPY) with its more than $109 billion in AUM but the lesser owned iShares S&P 500 Value Index Fund (IVE) that sits atop today’s rankings.  It only has $4.57 billion in AUM but that still makes it the 57th largest fund in our database so don’t call it small.  It gets 9.62 Green Reward Diamonds today while carrying a Red Diamond Risk Rating of 3.74, comparing  favorably to SPY’s 8.80 Reward Rating and 4.07 Risk Rating, which still gives SPY a respectable 23rd place rank today.  Several notable differences account for those ratings and the most noticeable may be that Apple Inc. comprises 4.38% of SPY but is not held in IVE whose biggest position is a 3.85% weighting in General Electric.  That Apple position is a component of SPY’s biggest sector exposure in Information Technology at 19.3% of the fund.  IVE’s largest sector exposure is to Financials with its 4th, 5th and 6th highest weighted positions being Berkshire Hathaway, Wells Fargo and JP Morgan Chase, along with Bank of America and Citigroup at 8th and 9th.  It is not because Quant now likes Financials as most of those sector funds still rank poorly as does the Consumer Discretionary Sector that makes up IVE’s second largest sector exposure.  SPY seems to have Quant’s preferred sectors in its higher weights but all of its Fundamental scores come in below IVE’s which gets an 81.1 total Fundamental Score to SPY’s 66.4.  Their Behavioral Scores are very close at 69.9 for SPY slightly beating IVE’s 69.6 showing how the market is turning to lower risk names.  We see this theme again when sorting by Quant’s top Behavioral Scores which produces an even lower average risk score among the top 10 and first decile.  We continue to hear this lower risk message out of Quant while also recommending more US focused funds.  Whether this foretells a continued US market rally or just better relative performance remains to be seen. Think about what you expect over the weekend and we’ll all see what Quant has to tell us Monday morning.  Until then, thank you for reading and have a nice weekend.

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