Monday, December 3, 2012

A couple of weeks ago on November 16th we mentioned the Powershares Dynamic MagniQuant Fund (PIQ) as a quiet riser in Quant that we were going to keep our eye on.  It ranked in 14th place then, dropped down out of the top 25 but is back in 14th place this morning so we decided to put our second eye on it too.  It’s different from Quant’s other ranked funds in that its portfolio is reconstituted every quarter, most recently in November.  That adds a different dynamic to the Fundamental Score which is usually calculated on the same constituents.  So today’s 89.2 Fundamental Score doesn't necessarily imply that those constituents are as cheap as they have been almost 90% of the time but that  the fund is holding positions that are as fundamentally cheap as they have held almost 90% of the time.  Those positions are selected using a quantitative algorithm that analyses the 2000 largest US companies that it predicts will have the greatest potential for capital appreciation.  That recent reconstitution skewed its 198 holdings towards the small cap and consumer discretionary sectors; we are seeing a lot of small cap funds score better but not too many consumer funds (although Friday’s top ranked IVE also had large exposure there).  Historically it has not proven to be as good as ETFG’s Quant model in that it has lagged the S&P 500 in most years but this year it is slightly outperforming as it has over the past two weeks as well.  That has boosted its Technical Score to 73.6 and put it back into Quant’s upper ranks.  Our interest in this fund is a bit parochial in that it may give a hint to how Quant will perform when managed equity ETFs become more popular as we expect will happen over coming years.  While this one isn't actually managed, it isn't as static as most other index based funds.  We have been hinting about Quant’s outperformance quite a bit in this space and are getting ready to put some meat on those bones.  We have been conducting an exhaustive study of Quant’s overall performance which we will announce in coming days, so keep your eyes on this space for that exciting news.  Suffice it to say we have found the ETF Global Quant model to be better than others even though it likes the Powershares Dynamic MagniQuant Fund today.

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