Closing out a volatile month, the three S&P 500 funds are all in the top 10. We saw something similar when our December 4th post highlighted the three in 4th, 8th and 12th place when Quant began to turn its focus towards the US. The S&P 500 then went on its huge run and we highlighted the three again on Valentine’s Day. That February 14th post explains how three funds that track the same index can have different scores and provides a good primer on how Quant works. That day saw them in 1st, 7th and 11th place and was on the cusp of a 3% correction which was less than most other regions suffered. So now that Chairman Bernanke has put the market fears to rest, what does it mean to have SPY, VOO and IVV in 1st, 6th and 9th place today?

We often remind you that Quant does not make directional calls but simply ranks which funds will perform best in whatever environment ensues. In that December 4th post we said it was going to be difficult for our top ranked funds to outperform the index since the index and similar funds were dominating the ranks. Outperform it did though and we will see how the algorithm performed subsequently when we update the calculations over coming days with February’s month end prices. Another month with the S&P 500 dominating the ranks will likely bring the outperformance spread down somewhat but the US market continues as the place to be.

A hint to what direction the market is going to take may be found in the average Red Diamond Risk Rating of the top ranked funds. We have been highlighting the top 10 average since it fell below 4 on February 5th. It bounced up slightly early this week in time for the rebound but has fallen back below 4 today. Our models are designed for the intermediate term so we try not to get too caught up in the day to day wiggles choosing to look for consistent messages in the ranking instead. Since we advised to be careful out there on February 5th, that low risk message has been consistent. We have had a nirvana of low risk providing high reward since then and with the Fed pumping $85 billion a month into the economy maybe nirvana can continue. Only time will tell if that low risk will be paired with further handsome rewards or lesser declines. Like Fox, we report you decide but we appreciate you looking to ETFG^sm to support your investment decisions.

We tried to get the First Lady to make our announcement but the White House had her sequestered away doing it for someone else.  So your humble blogger is here to convey some exciting news.  You may have noticed the new Dynamic tab on our home page index screen containing our latest new indices.

The ETFG^sm Quant Equity 10 is a smart beta index representing the top ranked funds from our Quant model as selected on the third Friday of each month.  The selections are implemented two trading days later and remain for the month until a new crop is selected, usually seeing about half the names turn over each month.  Some of those funds may be thinly traded, so for institutional managers with liquidity mandates we also devised the ETFG^sm Golden Dozen.  That one works the same way but picks the top 12 funds with a minimum average daily trading value of $5 million.  Their year to date performance may not look very special but going back to inception in late July, both indices have handily outperformed the S&P 500, so keep your eye on them.  You can see more information on each at your Bloomberg terminal under the tickers ETFGQE10 and ETFGQE12.  Or you can click on either one from our indices screen and see their constituents.  We will also be providing historical information on them as we more fully integrate our home page with our calculation agent, Structured Solutions AG, an emerging leader in this emerging space.

But that is not all.  We have also engaged our calculation agent to publish our ETFG^sm 500 which now carries Bloomberg ticker ETFG500.  It simply tracks the largest 500 ETPs, excluding leveraged or inverse, as constituted annually and rebalanced quarterly.  That one is unique in that is crosses asset classes and regions.  So if you are among the growing numbers of managers who invest in commodity, currency or fixed income ETPs along with the traditional foreign and domestic equity funds, you no longer have to track a benchmark designed for esoteric hedge fund products or one constructed to replicate what your portfolios already look like.  Your clients will appreciate seeing how their portfolios perform compared to a simple unbiased benchmark that represents the investment universe from which you are selecting.

We are in the process of getting those three indices published on as wide a platform as possible to make them fully accessible to the investing public at no charge.  So it shouldn't be long until they are available from your favorite quote provider; if not, please ask for them.  You can contact us at support@etfg.com if you would like to benchmark against them or desire any further information on those three or the many other indices on our home page.  If you manage ETFs you need comprehensive information, idea generation with clear and concise ratings and relevant benchmarks.   ETF Global is that unique place that provides all three.  Not much movement in today’s rankings but we’ll be back to take a look at those tomorrow.

When we wrote about Silvio Berlusconi last Thursday it wasn’t meant as an endorsement.  We were simply highlighting the SPDR DJ EURO STOXX 50 Fund (FEZ) and its 7^th place rank.  Well, the Italians look to be buying back the beat of that heart grown cold which has solidified the US dominance of Quant’s upper ranks.  All of the top ten are US funds and our friend FEZ has dropped down to 40^th place.

33 places isn’t all that much considering the circumstances.  The fund’s technical score was nothing special to begin with and has only dropped a couple of points down to 56.1.  Being a couple of percent cheaper gave the Fundamental Score a little boost up to a decent 78.4 but the sentiment score fell about 24 points down to 67.2.  Shorts are stable at 85.6 and volatility picked up to 92.3 from 89.4 on Thursday; Quant likes high volatility as scored in its proprietary way.  It’s the puts getting covered that caused the drop in rank as the put/call score dropped from 98.5 to 58.1.  The action provides a good example of how Quant reacts to market movements.  As far as the rest of Europe goes, we see positive and negative reactions but the names we’ve highlighted over recent days hold similar ranks today.  Italy’s EWI gained about 80 positions from Thursday up to 346^th place out of 773 funds in today’s rankings, but that is lower than it was on Wednesday as it wallows in the lower ranks with a terrible 19.1 technical score.

So through all the echoes, Quant sees things similarly now that Silvio is back in the mix.  He’s as honest as the next jade rolling that stone, he came knocking and his people threw him a bone.  Those puts and calls can swing quickly so we’ll keep our eyes on anything that Quant sees as meaningful.  Maybe we’ll get Bernanke to put some calm to our markets when he flies his helicopter over to Congress today.  We’ll be back tomorrow to let you know.  Arrivederci.

Last week we looked at the sectors represented in Quant’s top 100 equity ETFs, today we are taking a look at the countries in that group.  Regular readers know that Quant has had a US focus since late December and that remains the case this morning.  We typically see US focused funds comprising about half of the top 100, today it’s 85.  It seems only fitting that 1^st place is occupied by the SPDR S&P 500 Fund (SPY).

The other 15 span the globe but we’ll begin in the east where the algorithm has been highlighting more names lately.  The iShares MSCI Australia Index Fund (EWA) has been ranking well recently and it’s at 7^th place on high sentiment scores.  Indonesia is nearby and the Market Vectors Indonesia Index Fund (IDX) is in 40^th place with a strong Fundamental Score of 80.5.  You won’t find many Indonesian companies in the Vanguard MSCI Pacific Fund (VPL) which sticks to the more developed countries in the region.  It has 58% of AUM in Japan and gets 8 Green Reward Diamonds and 67^th place in Quant’s rankings today.  If you like developed Asia but not Japan you might like the iShares MSCI Pacific Ex-Japan Index Fund (EPP) also getting 8 Green Diamonds at 55^th place.   Down the development chain and closing out the top 100 are two emerging markets funds tied at 99^th place. SPDR’s S&P Emerging Asia Pacific Fund (GMF) and iShares’ MSCI Emerging Index Fund (EEM) are both struggling to stay in the top 100 after scoring better in recent months.

Developed markets are certainly finding the sweet spot lately and the iShares MSCI EAFE Index Fund (EFA) invests in all of them except the US.  Scoring better on the Behavioral side than the Fundamental, it gets 8 Green Diamonds at 51^st place.  It has a heavy weighting in some European countries also seeing their dedicated funds score well.  The iShares MSCI Spain, France and Germany Index Funds (EWP, EWQ, and EWG) rank in 23^rd, 31^st, and 46^th place with high sentiment scores.  Also members of the large iShares MSCI family, Switzerland’s EWL scores better fundamentally at 58^th place while Sweden’s EWD comes in at 82^nd place on a strong technical score.  If you don’t want to choose between European countries, the SPDR DJ Euro STOXX 50 Fund (FEZ) finds itself up at 9th place today on high sentiment scores. Coming back to the Americas, the Market Vectors Brazil Small-Cap Fund (BRF) jumped into the upper ranks last week and is holding on at 29^th place today on a high 86.4 Fundamental Score.  To our north, the iShares MSCI Canada Index Fund (EWC) has fallen in the rankings along with its price but has bounced back into the top 100 at 72^nd place.

That sounds like a lot but is slimmer international pickings than usual.  While the US theme is Quant’s clearest currently we see the international names leaning towards developed countries.  We also see an average Red Diamond Risk Rating among this group of 4.49 which is higher than the top 100 average of 3.94 but lower than the international average of 5.24.  With that review out of the way, tomorrow we are going to tell you about the new ETFG^sm indices that appear on our home page and your Bloomberg screens, thanks for checking in.

Do you really think Bernanke is about to take away the punch bowl sending the economy into cold turkey withdrawal spasms?  Looking at the action in the oil pits you would think Esther George is calling the shots on the Fed board.  Maybe oil got hit on that higher than expected inventory report but those have become commonplace since the fracking boom made the US an oil producer again.  Quant is unmoved by all the noise as the SPDR S&P Oil & Gas Exploration & Production Fund (XOP) is in 1^st place today, familiar territory as it has ranked in the top 5 since January 7^th.  Its broader sister, the SPDR Energy Select Sector Fund (XLE), confirms Quant’s pro energy message with its 4^th place rank, also familiar territory as it has been in the top 10 for most of the past month.

Notwithstanding the last two days, each fund is still outperforming the S&P500 year to date.  The lower risk XLE has held up a little better in the selloff but Quant favors XOP despite its higher 4.61 Red Diamond Risk Rating.  That’s the highest in today’s top 10 which still averages below 4, as do today’s top 25 and 100 funds.  A look at each constituent list gives a feel for that risk where XLE holds more recognizable names than XOP.   You won’t be filling your tank from Delek US Holdings which is XOP’s top holding with a 1.88% weight but they probably sell to ExxonMobil which tops XLE’s list at 17.26% of AUM.  Both funds get decent Fundamental Scores where XOP’s 80.4 beats XLE’s 75.1.  The two share similar mid 80s Global Theme Scores but XOP’s 72 constituents gives it a better diversification score than XLE with 44 which leads to a slightly higher Quality Score.  Although both are outperforming the market, their mid 60s technical scores are good but nothing special.  It’s their sentiment scores that account for their high ranks.  Both have high volatility and put/call scores and their short interest scores are each in their 99^th percentile where they have been throughout the rally.  So if the market has further to fall these two have some embedded buying pressure as those shorts will need to be covered.

If the market does have further to fall, the historically high correlation between today’s asset classes and sectors says risk off will hurt these funds.  A weakening economy is also correlated in most of our minds with lower oil prices.  However, those of us who sold cold drinks on the gas lines of the 70s know the Phillips curve has a poor empirical record.  Yes we can have a weak economy and high inflation and until Esther George becomes a household name don’t expect the Fed to turn off the firehouse.  All that liquidity needs to go somewhere and Quant thinks the oil pits will continue to absorb it.   Thank you for absorbing all that ETFG^sm has to offer, we’ll have even more for you next week.  Have a nice weekend.

He’s staking his future on a hell of a past and Sunday’s elections are coming on fast.  Europe aint complaining about what it’s got, seen better times but who has not.  We’re reminded of the Bob Dylan and Robert Hunter collaboration as former Italian Prime Minister Silvio Berlusconi makes another bid to lead Italy through its current fiscal difficulties.  He’s an old boll weevil looking for a home and if Italians don’t like him they’ll leave him alone.  Whatever happens in Italy’s elections, Quant looks ready to get back on the Europe train that performed so well last fall.  The SPDR DJ EURO STOXX 50 Fund (FEZ) is back in the top 10 at 7^th place.

Correcting about 6% since the beginning of the month, the fund’s technical scores have declined to a 59.7 average but that has boosted its Fundamental Score up to a decent 77.8.  Quant may see something only dead men know as the market is bearish exemplified by a very high 91.5 sentiment score.  Readers will remember how well this fund performed when it reached the upper ranks last fall when sentiment was also bearish.  Quant stepped aside as FEZ got as low as 97^th place in December but the fund has worked its way back up the rankings since then.  Italian companies comprise only 8% of its 50 constituents with another two thirds evenly split between France and Germany.  Those latter two countries see their dedicated ETFs, EWQ and EWG, making the top 50 but Italy’s EWI is mired at 469^th place in today’s rankings.

Everyone knows Berlusconi can charm the whistle off an evening train but the jury’s out on whether he can ease the Italians’ pain.  Market wisdom says the best time to buy equities is in the midst of a recession and Europe is clearly there now.  So as the investing world shorts the continent, Quant is going to the valley and signing its song, the echo will decide if it was right or wrong.  We appreciate you listening to the ETFG^sm song, we’ve teased you about an announcement and it won’t be long, maybe tomorrow.

From time to time we like to take a step back from Quant’s elite ranks for a broader look at the top 100 funds which on average outperform the S&P 500.  Readers know Quant has had a US focus throughout this young year and while that is still the case we have seen some foreign funds creeping up in the rankings.  But today we are going to look at the sectors represented in the top 100.

When we last performed this exercise on January 17th, the Energy sector was Quant’s 3^rd favorite, today it’s the most favorite with 10 funds from the ETFG^sm Global Energy Index scoring among the top 100 with XLE and XOP at 2^nd and 4^th place.  The average risk rating on the group is 4.56, higher than the top 100 overall.  Information Technology was the favorite sector last month and while its ranks have lessened, it still has 6 funds in the top 100 with 2 in the top 25, IGM at 17^th and IYW at 24^th place.  Those 6 funds have an average Risk Rating of 3.89, in line with the top 100 average.  5 Basic Materials funds made the cut last month and that’s the case again this month, tying that sector for Quant’s 3^rd favorite.  The highest ranker in this group is our old friend GDX dropping down to 9^th place this morning.  Its disappointing performance has driven its Risk Rating up to 6.14 higher than most equity ETFs but in the middle of the range for Basic Materials funds.  The Health Care sector is looking better in Quant’s eyes also with 5 funds in today’s top 100 where XLV gets as high as 22^nd place.  We know Quant has been favoring lower risk names and that group of 5 has a low average Risk Rating of 2.48.  The 4 Industrial funds in the top 100 have an average Risk Rating of 3.91 which comes down to 3.43 when we remove FAA which announced it will be closing.  The best ranking of the remaining 3 is XLI in 8^th place overall with a low 2.09 Risk Rating.  As Quant becomes more enamored with lower risk names, Utility funds are scoring better.  2 of them make the top 100 today with PSCU getting as high as 36^th place with a Risk Rating of 2.39.  That’s beaten by 51^st place XLU and its even lower Risk Rating of 1.84.  The ETFG^sm Global Consumer Discretionary and Staples indices each have one of their constituents in today’s top 100.  XRT represents the cyclicals at 22^nd place and XLP represents the staples at 33^rd place with the latter having a lower Risk Rating of 1.51 compared to the former’s 3.66.  Telecommunications and Financials see none of their index constituents anywhere near the top 100 today, each has a constituent getting as high as the mid 200 ranks.

Today’s list sees fewer names in most sectors making the top ranks as Quant has been favoring more broad market issues with lower Risk Ratings like the S&P 500 and Russell families of funds.  Better scores among Utility funds is another noticeable takeaway from today’s exercise.  The average Risk Ratings of the top groups has increased slightly with the top 25’s creeping above 4 but the top 10 and top 100 still average below that threshold.  That increase is largely attributable to foreign funds scoring better but we will have to hold that analysis for another day.  Thanks for reading today, we should be announcing our exciting news before the weekend so don’t forget to check back.

A couple of weeks ago we highlighted the Market Vectors Gold Miners Fund (GDX) mentioning it as a disappointment since it ranked well last fall.  It fell out of the top ranks but came back last month and is disappointing again.  We don’t bring it up today merely as a Lenten sacrifice in humility.  We need to highlight it as it has remained in the top 10 since then and has been the sole fund with the 10 Green Diamond Reward Rating for the past 5 days.  Its scores are remarkably stable since that January 30^th post so we don’t need to review them again.  Suffice to say it ranks so high due to excellent fundamentals and high sentiment scores.

We also want to highlight it in the context of our monthly performance updates.  The February performance files on Quant and our Green Diamond Reward Ratings have been posted on the publically available part of our website.  If you have been following them month to month you will notice that our sizable outperformance vs. the S&P 500 became less sizable last month.  GDX hasn’t helped as it has declined in the face of an impressive rally.  However a bigger reason why that gap has closed slightly is because the three S&P 500 ETFs have been among our top rankers since late last year.  Having three funds in the mix that track that benchmark makes it more difficult to beat it, especially when the other top ranks are populated by similar US large cap funds.  Beat it we did though.  If you take our top ranked funds each day, grouped as we have on those reports, they have basically doubled the benchmark, outperforming more than 85% of the time since our July 2^nd inception.  Excuse our lack of humility but what other service can say that about its ratings?

We’ll have more exciting news in coming days about the latest developments at ETF Global and how we are making our models even more accessible to the investing public.  Quant  still favors US large caps and the low risk funds continue to dominate the top ranks, GDX being a notable exception with its 5.34 Red Diamond Risk Rating.  Despite that, the average risk rating of the top 10 is 3.5 compared to 3.83 for the top 100 and 4.57 for all equity ETFs.  We’re hoping for a reversal in GDX at these levels that have provided support in the past.  Thanks for checking in today and don’t forget to check back for our announcement in coming days.

G20 finance ministers are meeting in Russia and the Americans are warning against loose talk regarding weaker currencies.  We remember how the last Administration’s weak dollar policy ended with a meteor hitting the world economy and as a warning to those folks today, a meteor streaked across the Russian sky shattering windows and sending broken glass down to the streets below.  As the investing world becomes enamored with Shinzō Abe’s weak Yen policy Quant isn’t taking the bait, no Japan funds show up anywhere near the upper ranks lately.  However, two foreign funds are breaking the US hold on the top ten and both are notable for their strong currencies.

Today’s 5^th place iShares MSCI Australia Index Fund (EWA) represents a country with a dollar that trades at a premium to our Bernanke dollar.  That has been enough for some sovereign wealth funds to redirect investments there pushing EWA ahead of the S&P500’s stellar performance.  A very nice 75.1 technical score is exceeded by an even better 83.3 sentiment score as the market is conditioned to spurn strong currencies, 2008 notwithstanding.  EWA’s impressive rally hasn’t damaged its valuation too much as it still gets a decent 71 Fundamental Score.

Another foreign fund from a country with a strong currency is the iShares MSCI Switzerland Index Fund (EWL).  It has been ranking near the top for most of this year and its performance has justified today’s 7^th place rank.  That rally hasn’t been fueled by the weakening Euro as they use the appreciating Swiss Franc (which also trades at a premium to Bernanke’s dollar).  The Swiss National Bank has capped that appreciation against the Euro in response to complaining Swiss exporters but if you put your investments there currency risk shouldn’t be foremost on your mind.  EWA’s 68.6 sentiment score suggests some market skepticism but it falls in the middle of its recent range.  Its 73.7 technical score suggests the rally in the Swiss market has further to go and it’s even better 79 Fundamental Score says this one is still cheap.

If a weak currency was the path to national greatness, George W. Bush would be king of the world.  We all remember how that weak dollar policy ended and while Quant does not say whether another meteor is headed towards our markets, we continue to see the low risk theme dominate.  Coming from countries with strong currencies, EWA and EWL are also notable for the low 2 handles on their Red Diamond Risk Ratings.  That keeps the average of the upper ranks below 4 but that low risk hasn’t impacted performance as those have been the strongest areas to be in.  Nobody but ETF Global^sm shows you those funds with low risk and high reward prospects and our updated performance pages attest to our effectiveness.  We’re glad you are among those who realize the value we add.  Please help us spread the word and have a nice weekend.

Shakespeare lamented blind love being so often beguiled in its choice; fortunately Quant is not monogamous and shoots plenty of its golden arrows everyday to varied targets.  Lately those arrows have been directed towards US large cap funds and the Grande Dame of that group is the oldest ETF on the market celebrating its 20^th birthday last month, the SPDR S&P 500 Fund (SPY).  It garnered most of Quant’s affection over this midwinter night ranking in 1st place, but Quant’s wandering eye is also focused on some of its pretty sisters.  The iShares S&P 500 Index Fund (IVV) gets enough love to rank in 7^th place and also close behind is Vanguard’s S&P 500 ETF (VOO) in 11^th place today.

Does this mean that SPY will outperform IVV and VOO in coming months?  Probably not.  All three get excellent mid 90s Quality Scores where minor differences can be attributed to liquidity and sponsor size.  Likewise all three have identical constituents and get a Global Theme score right around 65, very minor differences here can be attributable to minor differences in constituent weights which should not affect performance over time.  When we psychoanalyze Quant’s affection, the Behavioral and Fundamental Scores are where we really get inside its mind.  On the technical side of Behavioral, all three score about 74 where small differences can result from one or another closing on a bid or an offer.  Bigger differences emerge on the sentiment side where SPY scores 68.2 to VOO’s 60.6 and IVV’s 54.2.  All three get high short interest and low implied volatility scores but varied put/call scores.  SPY wins that one at 81.3 as option traders tend to choose the more liquid name.  Over on the Fundamental side we see more differences despite identical holdings.  Age is beauty here as the older funds score better.  The algorithm does not just look at current valuation but puts it in a historical context and VOO’s youthful two years only includes post crash valuations making it look more expensive.

So which one should earn your affection?  It doesn't really matter as all three do an excellent job tracking the index.  Any bump that SPY gets from those puts being covered will be offset by that tight tracking.  Maybe your broker has better commission rates with one or another or maybe you already have affection for one of those sponsors.  All are deserving of that affection exemplified by those high Quality Scores.  So this is one of those rare investment decisions that can be made with your heart as much as your head.  Winged Cupid is painted blind but like Shakespeare’s fairies, Quant will bless your portfolio so you ever shall be fortunate.  Thank you for reading and happy Valentine’s Day (don’t forget the flowers tonight!)

There’s been remarkable stability in the top ranks for the past couple of days. As US markets close in on new highs that’s where Quant wants to maintain exposure and as large cap continues to dominate, a couple of small cap funds are also garnering Quant’s attention. Readers will recognize IWO and IWM, those are the tickers for today’s 3^rd place iShares Russell 2000 Growth Fund and 6^th place iShares Russell 2000 Fund.  Both have spent most of 2013 in the top ranks and have indeed earned those positions by outperforming the S&P 500’s monster year to date run.

That outperformance explains their solid technical scores where the broader IWM beats the growth focused IWO by 74.4 to 71.8.  The latter has outperformed the former year to date and gets a lower short term technical score as it becomes more overbought.  The market thinks both are already overbought which can be seen in their strong mid 70s sentiment scores driven by high put/call and short interest measures.  However, implied volatility of each is middling as the market appears complacent about the rally.  Fundamentally both funds score well driven by high yield scores and the higher ranking IWO also scores very well on the PE measure.  That does not mean it is cheaper than IWM, its PE is actually a little bit higher, it means it is cheaper relative to its historical valuation than IWM.

Their 3^rd and 6^th place rankings are close enough to warrant another screen to decide which you prefer.  Take a look at their tear sheets to see which sectors and constituents best fit your other investing themes.  If you like financials, you may prefer the lower ranked IWM with 22.5% of AUM in that sector, or if you prefer health care you may want IWO’s 20.2% of AUM there.  Both funds have info technology and industrials rounding out their top three sectors.  We’re glad you use ETF Global to round out your investment decision process and invite you to dig deeper by forwarding any questions you may have to support@etfg.com.  We will respond promptly with a one on one phone call if necessary, that’s just one of the ways we strive to show our appreciation to our users.

With all our focus on risk lately, let’s take a look at the risk of a fund closing.  When that happens, the Authorized Participants who create and redeem shares look elsewhere to capture tracking error.  Tight tracking error is one of the more attractive aspects of ETFs so you don’t want to be in one without it.

Our publically available Liquidation Watch List helps you avoid those funds that exhibit characteristics that make them more likely to close.  Most sponsors will give a fund at least two years to meet its goals so we screen out all those younger than that threshold.  That leaves us with 1,067 exchange traded products of various structures to screen for the second two criteria.  268 products have less than $5 million in Assets Under Management which is an amount that makes it difficult for a sponsor to meet the obligations of running a public product.  The public tends to stay away from those products with negative trailing twelve month performance which can be the last straw before a sponsor pulls the plug, 238 products meet that criteria this month.  Looking at the intersections, 37 products meet all three criteria and comprise February’s list.

A quick glance at the spreadsheet shows most are esoteric products such as leveraged and inverse funds whose prospectuses mostly warn against holding as investments. our models have been favoring lower risk names and while only one this month gets scored in Quant, they all get Red Diamond Risk Ratings and the group averages slightly over 7 red diamonds. So if you are looking at the higher risk products in the ETP market, check their ETFG Red Diamond Risk Rating and make sure they are not on the Liquidation Watch List. Thanks for reading, tomorrow we'll go back to the funds you want to buy. 

Last week we thought all the low risk members of the top 10 may be signaling a correction.  Friday gave us the storm we expected but also another higher high to the stock market’s mountain chart.  Today’s top rank is held by a fund that has been leading that climb, the iShares Russell 1000 Fund (IWB), and guess what, its Risk Rating is a low 3.55.

This isn’t one of those laggards that are increasingly showing up in the elite ranks on high Fundamental Scores, although it has a very high 81.5.  It also has a very solid 73.5 Behavioral Score that is well balanced between technicals at 75.7 and sentiment at 71.3.  That sentiment score gets a boost from a 91.8 put/call score that has been bouncing this fund in and out of the top ranks.  Readers may remember us warning not to interpret its 52^nd place rank on January 28 as a sell signal because it resulted from a zero put/call score.  Now the fund holding the 1000 largest US companies is celebrating atop its year to date mountain chart and ahead of the S&P 500’s similar circumstance.

Our thoughts on Friday show the limitations of the human mind where bias is inextricable from one's analysis. Fortunately we have a well calibrated quantitative model to avoid that. While we may occasionally mistake its message, the model hasn't had too many mistakes in ranking the best performers. Whether we go higher or lower from here, Quant says you will be happy to go there with IWB and its 9.83 Green Diamond Reward Rating. We'll let you decide for yourself what the low risk message means, good luck this week.

The winds are up and the seas are agitated as Wall Street is under a blizzard warning.  As the kids get their shovels and sleds ready Quant continues to batten down the hatches, two additions to today’s top 10 both carry Red Diamond Risk Ratings below 4.  This low risk theme is coinciding with the stock market’s inability to make a new high.  Are we about to slide down the other side of the beautiful mountain chart the market has been drawing since last fall?  Or even worse the one from 4 years ago?  Readers know that Quant doesn't make directional calls but it is clearly saying low risk names will outperform in coming months.

One of those additions to the top ten has been here recently.  Today’s 6^th place iShares Russell 3000 Fund (IWV) got to 5^th place on December 27^th when the model turned its focus to the US.  It isn't easy for this US large cap fund to outperform the S&P 500 with its similar constituents but it has since then which has kept it in or near those elite ranks.  That accounts for its pretty 73.5 technical score as it has been proficiently scaling that mountain chart.  Despite gaining more than 1% per week so far this year, its valuation remains healthy with an excellent Fundamental Score of 81.7.  Keeping with Quant’s new low risk theme, IWV has a low 3.97 Red Diamond Risk Rating.

Carrying even lower risk is the iShares MSCI Switzerland Index Fund (EWL) bringing its 2.66 Red Diamonds into the top 10 for the first time.  We highlighted it when it got to 16^th place on January 22^nd and it too has outperformed since then, even with yesterday’s 1.8% face plant.  Quant liked that one day correction which was good enough for a jump of 15 positions into 8^th place this morning.  That brings up another interesting aspect of the recent rankings where we are seeing weak performance scoring better; maybe Quant wants to hide in those funds that have already taken their lumps.  Like others we have written about this week, EWL’s technical score is among its lowest although still very healthy at 68.5.  We speculated a couple of weeks ago that the swells left Davos and put on bearish Switzerland trades as that was when its sentiment score bumped up, it has continued to rise up to 78.2 today.  Valuation is solid as the Fundamental Score is EWL’s best at 79.7.

So pull in your risk and pull up your boots, the snow is coming and things are getting slippery.  It remains to be seen how steep this other side of the mountain becomes but Quant says to be careful.  We are focusing on Cedar Hill in Central Park where the slides will be joyous.  We hope you too get in position to enjoy the storm and have a nice weekend.

There was very little movement in the overnight rankings but one fund returns to the top 10 and brings with it another Red Diamond Risk Rating below 4. We last wrote about the iShares Dow Jones U.S. Technology Index Fund (IYW) when it got as high as 8th place on January 11th. It has lagged the S&P 500 since then as it has been weighed down by almost 18% of AUM in Apple Inc. It fell down to 94th place but got back into the top 10 on January 29th when it equaled today’s 7th place rank and it has begun to outperform since that recent date.

When we highlighted it on January 11th we said it isn't often that we wrote about a fund with a 27.9 technical score, today’s is only slightly better at 29.2. As it was then, the flip side of that is a very high Fundamental Score of 97.2. Apple has caught a bid over the last couple of weeks and so has IYW, a look at the other top holdings shows a list of fortress balance sheets in the tech space. IBM, Microsoft, Google and Oracle round out the top 5 holdings and nobody thinks these companies are going away if we go into another recession. Despite those behemoths, someone thinks these names could be vulnerable as the fund gets a decent 76.4 sentiment score driven by high short interest and low implied volatility which are both scored in a contrarian way.

As more and more Wall Street greybeards sound cautionary alarms, the names that have already taken it on the chin could be good places to hide. Apple’s 35% decline and single digit P/E would put it in that category. IYW saw a 15% decline from September’s high to November’s low and has gotten about half of that back. Maybe Quant thinks it’s going to get the rest back in coming weeks or isn’t going to lose much more if the market does. Its low 3.9 risk rating comes mostly from the structure and sponsor of the fund whereas its volatility and deviation scores fall more in the middle, so its 1.07 beta could render it vulnerable. We like to say that Quant moves in mysterious ways but it has been very clear this week preferring the lower risk names for now. We’re glad you prefer us and we appreciate the time you spend here, thanks for reading.

We woke up this morning, smiled at the rising sun and three little birds sat by our doorstep singing don’t worry about a thing.  Quant has a similar message for you as yesterday’s big decline in the top ranks' average risk scores continues today.  Whether we are about to correct or not, Quant says it’s not a time for worrying, don’t rock the boat if you want to feel like a sweepstakes winner.

Those low risk names from yesterday are still in the top 15 and today we have a couple of others for you.  As the Dow flirts with 14,000 everyone says yeah and Quant says the Diamond is a girl you want.  The SPDR Dow Jones Industrial Average Fund (DIA) has been scoring well lately and is up to 4^th place today with a low 2.96 Red Diamond Risk Rating.  Its low risk comes mostly from its structure and sponsor as its volatility and deviation measures within that risk rating are higher.  Solid 60s scores across most categories get it in the top 100 but its high 88.1 Fundamental Score gets it in the top 10 for the second day in a row. 

Also giving Quant positive vibrations is the Powershares Dynamic LargeCap Growth Fund (PWB) in 7^th place today with an even lower 2.49 Risk Rating and within that one are even lower volatility and deviation scores.  Liquidity risk is its highest internal risk score so be careful if you are putting on a large trade with this one, its average daily trading value is less than a million dollars.  If you are looking to invest less than that, this smart beta fund’s valuation should calm any worries as it earns a very high 96.6 Fundamental Score today.  Technicals are good at 68.2 but the bears have thus far stayed away from this one’s algorithm, its sentiment score is a middling 54.2.  It made a big jump of 141 positions yesterday into 12^th place, its highest rank until today’s 7^th place.  Performance hasn’t been anything special yet but Quant thinks this one is coming in from the cold.

The movement in the rankings after Monday’s selling was one of the starkest we’ve seen.  The low risk message had been building for a few weeks culminating in those average risk ratings of our top ranks falling below 4 where they remain today despite yesterday’s positive tape.  With so much trouble in the world Quant suggests we take a step back from the rat race and get in a mellow mood.  Thank you for hearing our song today and happy birthday to Ronald Reagan and Bob Marley.

We had been seeing some foreign funds creeping back into the upper ranks but this week is looking like a turning point.  We see more than usual turnover in today’s top ranks but Quant’s US focus has become even more pronounced.  As Europe becomes enveloped in political scandal, and even worse, soccer scandals, the S&P 500 sees two funds tracking it into 1^st and 2^nd place this morning.  But SPDR’s SPY and iShares’ IVV may not be signaling another leg up in the US market but a hiding place from a worldwide selloff.  Quant predicts relative performance, not market direction, and while those two funds solidify their positions in the top 10, some bomb shelter funds are among today’s biggest movers.

Jumping 193 positions overnight into 10^th place is the iShares High Dividend Equity Fund (HDV) making its first appearance in the top 10.  Those high dividends were out of favor at the end of last year when tax avoidance was dominating the market.  The weakness in November and December makes the fund cheap enough to get an 85.6 Fundamental Score and its technicals are also looking better now with scores averaging 70 in that category.  The fund is exposed to those sectors that will do well if last quarter’s GDP contraction gets worse.  Its top three sectors are health care, consumer staples and telecoms which all tend to be the last things people give up in a recession.  If we are going into a recession, investors will probably reduce volatility, which may explain today’s 13^th place fund. The iShares MSCI USA Minimum Volatility Index Fund (USMV) jumped 287 positions overnight and last got near these ranks on November 16^th which was a good day to buy it although it has lagged the S&P’s big run since then by a couple of points.  That was a one day appearance in the top 25 so we’ll see if this time becomes more durable.  Today’s appearance is driven by a high Fundamental Score of 86 and again improving technicals averaging 73.5.  It also has constituents that should outperform in an economic contraction as health care and consumer staples lead its sector exposure.  This fund’s most notable attribute however is its very low 1.23 Red Diamond Risk Rating, the third lowest of all 1508 funds in today’s database.  HDV’s risk is also low with a 2.77 Risk Rating which is 147^th on the lowest risk list.

The closest Quant comes to making a directional call is when high or low risk funds dominate the ranks.  Today we see the average risk ratings of the top 10, 25 and 100 funds all fall below 4 which is unusually low.   So although those S&P 500 funds in 1^st and 2^nd place may outperform over the next few months, it could mean outperforming a declining market.  We haven’t yet studied the correlation between our Risk Ratings and market performance but we have studied the performance of our high ranking funds.  Those reports are on the publicly available part of our site and they give us confidence that these low risk funds will outperform in coming months.  Thanks for reading and as Sgt. Esterhaus says, let’s be careful out there.

Quant still loves the country that doesn't have enough energy to light a Super Bowl, really.  The top ranks are still unusually weighted towards the US and within those ranks we continue to see a weighting to the energy sector.  Today’s 2^nd place SPDR Energy Select Sector Fund (XLE) has been scoring well for several weeks and one of today’s big movers is the iShares Dow Jones U.S. Energy Sector Fund (IYE) jumping 61 positions into the top 50 at 48^th place.  The two are closer than their ranks suggest.

Both come from strong sponsors and have plenty of liquidity accounting for mid to upper 70s Quality Scores and their similar constituents account for similar mid 80s Global Theme Scores.  The reason why XLE gets the better Fundamental Score of 71.2 to IYE’s 58.5 is their yield scores which can reflect trade lot strategies within the funds as much as the dividends actually generated by the constituents.  Both funds have nearly identical price charts and very similar technical scores around 70.  Differences here can be attributable to different lifespans even though both have been around for more than a decade.  The larger XLE has a higher put/call score driving its sentiment score to 78.6 compared to IYE’s 66.5 which is the main reason why it scores and ranks better overall.

Those nearly identical price charts explain their nearly identical Red Diamond Risk Ratings of 3.77 and 3.78.  XLE has the lower risk rating and higher Green Diamond Reward Rating of 9.26 to IYE’s 7.60, mostly because of those higher sentiment measures.  Despite the gap in those ratings you should expect either fund to perform about the same and Quant thinks that will be better than most for the next few months at least.  Quant’s energy and US weightings have been performing well and it looks like the ride is just being joined by IYE.  Thank you for joining us and good luck this week.

Many thanks to Paul Sullivan for mentioning us in his Wealth Matters column in this morning’s New York Times.

One of the hottest trends in the ETF market is smart beta where periodic security selection is based on computer algorithms rather than humans who are susceptible to bias.  Think of Quant’s move to the US late last year as the fiscal cliff debate was heating up; we didn’t see too many pundits recommending the US as those Armageddon countdown clocks were clicking away on our TV screens.  As those clocks now count the gap to US all time highs, three such smart beta funds are scoring well again today.  Readers know we have been looking closely at how these funds perform and we have not been disappointed.

All three have been scoring well throughout this young year.  The Powershares Dynamic Energy E&P Fund (PXE) got as high as 11^th place on January 16^th and is at 7^th today after gaining about 10% in those few weeks.  Its cousin, the Powershares XTF: Dynamic OTC Portfolio Fund (PWO) began the year at 5^th place and is at 8^th place this morning.   A rare OTC fund that does not own Apple, it is up about 6% YTD, a little ahead of the S&P 500.  The third is today’s 11^th place Powershares Dynamic Energy Fund (PXI) also scoring well since its 2^nd place rank on January 2^nd.  That one has almost doubled the S&P 500’s impressive January returns.  The two energy funds get very nice mid 70s scores on technicals and fundamentals but PXI gets a slightly lower Sentiment Score of 63 to PXE’s 73.  The OTC fund gets lower behavioral scores but a very high 90 Fundamental Score.  All 3 have very attractive Risk Return spreads with 8 or 9 Green Diamonds but only 4 Red.

If you are not familiar with the term smart beta, prepare to hear more about it because various strategies within the space are performing well and more are coming to market.  The aforementioned three haven’t always performed as well as they have lately but our own smart beta algorithm picked up on them at a good time.  As 2013 becomes the year of smart beta, Quant says it’s no gimmick.  Take a look and send any questions along to us at support@etfg.com , we are here to keep you apprised.