Friday, January 4, 2013

Two seemingly different additions to today’s top 10 may be more alike when we look beyond their names. The iShares S&P 500 Value Index Fund (IVE) rose 19 positions into 3rd place, its highest rank since 1st place on Christmas Eve, and the Powershares XTF: Dynamic OTC Portfolio Fund (PWO) rose 12 spots into 7th place, its highest rank yet.  Value funds don’t usually appear on the same lists as OTC funds so let’s look at what Quant sees in them.

Both get decent Behavioral Scores in the mid 60s with IVE winning the long term technicals and PWO the short term.  On the Fundamental side, the value fund has more value than usual exemplified by its 81.5 Fundamental Score but PWO scores an even better 90.5.  Its 13.24 P/E is a tad higher than IVE’s 12.88 but that disparity has usually been greater.  The constituents in each fund do not look the same where IVE sees half its assets in financial, energy and industrial stocks while more than half of PWO’s assets are not surprisingly in info tech.   Overall, IVE scores a 74.3 while PWO gets 73.6 but PWO actually does better in the Green Diamonds earning today’s 10 Green Diamond top ranking.  It’s on the risk side where we see more similarity.

Both funds have lower than average risk with IVE getting 3.63 Red Diamonds, a little better than PWO’s 3.95.  Each scoring below 4 provides a message.  Today’s top decile of Quant rankers have an unusually low average risk score of 3.97 and the top 10 average is even lower at 3.91, both are down about 20 basis points in a couple of days which is a large move.  We like to remind you that Quant does not predict market direction, just relative performance so it could be a warning sign when the lower risk names are poised to outperform.  That said, the ranks are still weighted towards the US but a few foreign funds are creeping up.  So Quant still sees the US outperforming but it could outperform in a downturn.  Thanks for reading and have a nice weekend.

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