Wednesday, December 5, 2012

Guten Morgen. We have been highlighting some weak sisters of Europe lately where the iShares MSCI France and Spain Index funds (EWQ and EWP) have been scoring well and performing well.  Each is up during the recent selloff.  We haven’t had a chance to write about Europe’s sugar daddy, Germany, because it hasn’t been scoring as well.  Until today as the iShares MSCI Germany Index Fund (EWG) jumped 46 positions overnight into Quant’s 12th position, tied with iShares’ Emerging Markets and S&P 500 Index Funds (EEM and IVV).  The fundamentals of Germany’s fiscally balanced economy are strong but this fund’s Fundamental Score is a middling 63.1 today which doesn't mean it’s fundamentally weak but just not cheap on a historical basis.  iShares funds usually have very good Quality Scores but this one’s 52 constituents limit its Diversification Score to only 35.2 which keeps its Quality Score at 76.5, not bad but not the reason for its high rank today.  For that we need to look into its 80.5 Behavioral Score.  It gets that high on a very high 82.3 Sentiment Score and a solid 78.7 Technical Score.  The former is driven by a persistently high Short Interest Score and a rising Put/Call Score.   On the technical side we see its recent good performance reflected in an 87.3 Short Term Score but its Intermediate and Long term scores of 81 and 74 are sweet tortes too.  It has a low Red Diamond Risk Rating of 3.9 providing yet another example of Quant favoring the lower risk names, so proceed mit vorsicht.  Yesterday’s Wall Street Journal had an interesting interview with Germany’s Finance Minister Wolfgang Schäuble which we recommend for anyone following the Euro story.  In it he explains his country’s strategy to make the rest of Europe more like Germany, at least as far as fiscal policy is concerned.  He likens himself to Sisyphus constantly rolling a boulder up a hill.  That mythical Greek figure was condemned to do that forever only to see the bolder roll back down each time.  We hope for a better outcome regarding Herr Schäuble’s efforts and Quant thinks he may at least have a breeze at his back for the next few months.  So if it has been too much for your gut to bear investing in France and Spain, you now have a go ahead to allocate some of your equity dollars to Europe’s strong horse.  Viel Glück und auf wiedersehen.

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