Thursday, March 28, 2013

One of the drivers of the bull market has been stock buybacks where companies can offset mediocre earnings growth with ample cash or cheap debt to produce strong earnings per share growth.  Sometimes overall earnings are so strong that there are limited other opportunities to reinvest the profits.  Whatever the reason, a US company that has repurchased at least 5% of its outstanding shares for the trailing 12 months is eligible for inclusion in the Powershares Buyback Achievers Fund (PKW), today’s top Quant ranker and sole 10 Green Diamond fund.

It has held that unparalleled Reward Rating for 5 straight days and a look at its chart explains why.   Like PIQ, its sister smart beta fund that we wrote about on March 18, it has left the S&P 500 in its dust this year making it quite an achiever in its own right.  It has done that while garnering less than 3 Red Risk Diamonds, which unlike their Green counterparts are reflective of a product’s composition and history not predictive of future returns.  The 2.96 Red Diamond Risk Rating says that PKW is less risky than 70% of all 1469 exchange traded products, and its 10 Green Diamond Reward Rating says it has the single best prospects for the next few months of all the 742 equity ETFs in our rankings, based on last night’s close.  That Reward Rating reflects the 209 constituents within the fund which is the one aspect you need to know about because they are about to change.  The quarterly reconstitution that occurred in January has performed terrifically but a new one will come in April.  So PDF its tear sheet with the button in the upper right and do it again in a few weeks to see how they differ.

Whether you should buy it now or wait for the next portfolio is up to you, the model driving the fund’s index has proven adept throughout its quarterly reconstitutions as seen in PKW’s strong intermediate and long term technical scores.  Its Fundamental Score will change with the new portfolio which will affect its Green Diamond Reward Rating.  We will keep an eye on it and let you know so you can keep your eyes on it too.  Closing out a remarkable quarter for the US stock market we wish you all a Happy Passover and Happy Easter!

Wednesday, March 27, 2013

The broad US theme has become even more pronounced than we have seen all year. On Valentine’s Day we wrote about the three S&P 500 ETFs (SPY, IVV, and VOO) ranking in the top 15, today they are all in the top 10 joined by the Growth and Value versions of that index (IVW and IVE) in 2nd and 9th place.  Two broad Russell funds also make today’s’ top 10, the total market 3000 (IWV) ranks 3rd and the large cap 1000 (IWB) finds itself tied at 9th place followed closely by the small cap 2000 (IWM) in 12th.  One result of this broad US concentration is the average Red Diamond Risk Rating of the top 10 has come back down below 4.

We were surprised to see the 2 bigger S&P 500 funds scoring above 4 Red Diamonds, the younger VOO gets a lower Risk Rating which will make more sense after reading that Valentine’s Day post.  The 7th place iShares S&P 500 Index Fund (IVV) with 4.29 Red Diamonds and the 9th place iShares Russell 1000 ETF (IWB) with 3.85 have similar inception dates in May 2000 so we wanted to compare the full Risk Ratings on each.  They are pretty close on the integrity measures with IVV scoring better with slightly lower scores in Structure, Liquidity and Efficiency.  With Risk, lower is better.  The country scores are even closer as both are entirely US focused so the tiny difference can be attributed to rounding.  It is the Volatility and Deviation scores that differentiate between upside and downside volatility and deviation separating the two.  Plotting both funds on the same price chart exposes little daylight from time to time but IWB wins out slightly which effects those measures and accounts for the Russell 1000’s lower overall Risk Rating.

Our Quant and Reward models predict relative performance not market direction and we have speculated that the low average Risk Ratings of the top rankers could be a cautionary signal.  So far it hasn’t meant that but the selections in the broad US market have kept you out of all the troubles overseas and the models say the US will continue to outperform.  Only time will tell if that outperformance comes on the upside or the downside.  Thank you for spending your time at ETF Global, we’ll be back tomorrow to close out the shortened week. 

Tuesday, March 26, 2013

A week ago we took a bird’s eye view of the sectors represented in the top 100 ranked equity ETFs, today we’ll look at the regions.  Quant continues to favor the broad US market with only 16 funds devoted to other regions making today’s top 100.  So let’s begin with our neighbors to the great white north.

The iShares MSCI Canada Index Fund (EWC) got into the top 10 for the first time this year on March 15th which happened to be the monthly selection day for our Dynamic indices.  It has managed to maintain 6th place today.  It’s the only non US fund in the ETFGQE10 but the Golden Dozen also has a couple of European funds this month. The SPDR DJ Euro STOXX 50 Fund (FEZ) and the iShares MSCI France Index Fund (EWQ) were both among the top 12 funds that met the Golden Dozen’s liquidity requirements on March 15th and rank at a respectable 22nd and 30th place today, we obviously have high hopes for them at least for the next month.  If you are tempted to pick up some exposure in Europe, Quant likes these and a few others.   Germany (EWG), Sweden (EWD), Switzerland (EWL) and Spain (EWP) see their iShares MSCI Index funds in 40th, 45th, 56th, and 57th place which aren’t great but do signal outperformance over the next few months.  If you want to keep it broad, the iShares MSCI EAFE Index Fund (EFA) is in 74th place but struggling to stay in the top 100 lately.  Moving to Asia, the iShares MSCI South Korea Index Fund (EWY) is at 18th place, its highest rank all year as Quant suggests its correction may be done.  The two China funds that performed so well for us last year are showing up again.  FXI and GXC have come down to their 200 day moving averages and up to 64th and 66th place.  It may not be Asia but it is Pacific and the iShares MSCI Australia Index Fund (EWA) ranks at 30th today, off from its recent higher ranks.  Some Asia-Pacific funds make the list that are notable for excluding one of Asia’s hottest stock markets. The iShares MSCI All Country Asia ex Japan Index Fund (AAXJ) barely makes the cut at 99th place but their Pacific Ex-Japan Index Fund (EPP) does better at 45th.  Emerging markets funds have not been scoring well this year but two make today’s top 100. The SPDR S&P Emerging Asia Pacific (GMF) is at 79th place but the iShares MSCI Emerging Index Fund (EEM) which did so well for us last fall ranks better at 61st.

So if you must invest outside of the US there are some ideas but Quant is still clearly saying the broad US market is poised to continue its outperformance.  It has been the right call all year but will bring our performance versus the S&P 500 down again when we compile our monthly performance reports next week.  With all three funds tracking that index in the top 25 and similarly broad US funds also ranking highly, we are just happy to be steering you to the best performers in the world of ETFs. 

Monday, March 25, 2013

Lady Luck wasn’t very ladylike to our brackets this weekend but we don’t rely on luck for things more important than college basketball.  We seek out the best tools and comprehensive analysis of the important matters at hand.  When it comes to ETFs, our models have proven to be excellent selection tools for our clients’ equity allocations.  However, beyond Quant and our Green Diamond Reward Ratings, ETFGsm offers myriad tools to help you decide on other allocations too.  Our indices on the home page provide a deep yet quick and concise view of the world of exchange traded products.

Beginning with the ETFG Global 500 Index, you can see how the world of exchange traded products has performed day to day or year to date.  This capitalization weighted market performance benchmark was designed for managers who take advantage of ETFs to allocate their portfolios across asset classes and regions.  Reflecting the performance of the 500 largest exchange traded products, excluding leveraged and inverse, it is published under the Bloomberg ticker ETFG500 and we let managers benchmark against it free of charge, please contact us if you are interested.  Except for Dynamic, the other indices are calculated in house and provide a quick look at how those asset classes, regions and sectors are performing.  If one looks lucky to you, click on it to see its constituents and click on any of them to see their tear sheets.  Maybe an underperforming index strikes you as a place to capture value or maybe you want to get ideas from what’s hot.  We don’t tell you what to do we just make it easier to decide.  The first three tabs contain simple market performance benchmarks but the Dynamic tab shows our published smart beta indices that we have written about, most extensively on February 27.

If you think Lady Luck is eyeing any of those indices you can also take a closer look with our powerful Scanner. Begin by choosing which of the dozens of metrics you want displayed on the output and then select the appropriate Category, Focus, Region or any numeric filters or other screens.  Your clients expect you to use the best tools available to manage their portfolios and none have proven better than the ones ETFGsm brings to you every day.  Thanks for reading and good luck this week.

Friday, March 22, 2013

We’ve noticed much commentary lately about Dr. Copper, the commodity said to have a PhD in economics for its power of predicting economic growth.  Although empirically questionable, the breakdown in the commodity’s price has cast aspersions on the basic materials sector which has lagged the S&P 500 this year.  Plotting copper against the stock market year to date looks like a set of alligator jaws about to chomp.  We mention this because a couple of basic materials funds have been quietly climbing the ranks.

The 14th place SPDR Materials Select Sector Fund (XLB) with 9 Green Reward Diamonds looks a little better than the 37th place iShares Dow Jones U.S. Basic Materials Index Fund (IYM) with 8, but a deeper look at each on the ETFGsm Scanner will help you make your own assessment.  Beginning with the Filter function, we like to display the fundamental data available on the Display Fields dialog along with our Ratings, Quant Score and the compare function.  Selecting Basic Materials under Focus will narrow the list which we can display alphabetically by sorting the Ticker column header.  Checking the compare box for IYM and XLB and clicking Compare up top will put the two alone on your screen.  You will see that XLB is more expensive on most measures but gets better scores.  One reason is its longer lifespan includes more data points to compare against, in this case some late 1990’s high valuations.  If you also chose to display performance, you will see that XLB has outperformed IYM lately but that’s not the reason for its extra Green Diamond. Clicking Quant Report up top will show the two funds alone on our Quant screen where you will see IYM has a higher Fundamental Score which is half of the Green Diamond Reward Rating and both have identical 56.0 technical scores today. The final fourth of the Reward Rating is the sentiment score which favors XLB by 9 points, pushing it over the 9 Diamond threshold.  All that may be more granular than you need in which case clicking on either fund will bring up its tear sheet showing their minor differences in living color.

If those alligator jaws chomp down on Dr. Copper and the market, you can expect these funds to outperform which our models are suggesting could happen.  Since quantitative models are free of personal bias, that doesn't mean we think the Florida Gators are going to help Obama’s brackets as our hearts are with the riding high Jesuits at G’Town.  We’ll see what our models and our brackets look like on Monday, have a good weekend.

Thursday, March 21, 2013

We have written extensively about the average Red Diamond Risk Rating of the top 10 funds recently coming in below 4.  That number is now at a still low 4.2 as growth and small cap funds comprise more of today’s elite ranks.  The lowest Risk Rating among the top 10 is 3.19 and belongs to the Powershares Buyback Achievers Fund (PKW).  You can read more about the fund in our March 6th post but today we will use it to explain how our Risk Ratings are compiled.  Under the Analytics button the first selection is the ETFGsm Red Diamond Risk Rating page listing our various risk scores for all exchange traded products.

You will notice the highest Risk Ratings skew towards the leveraged and inverse products but we can focus on PKW by entering its ticker in the search box above the sortable headers.  Now we see its 3.19 Risk Rating highlighted in Red with its six sub categories to the right (their weightings are at the bottom).  Each of these sub scores is a proprietary compilation of various industry standard metrics.  PKW’s 3.3 Volatility score includes our ETFGsm Implied Volatility measure in addition to other metrics to help differentiate good and bad volatility because we don’t want to penalize good performance. Similar thoughts drive our Deviation score which also includes various industry metrics. Country risk comes out of our Quant model and is an example of how our Diamond Ratings differentiate metrics that Quant integrates.  Structure is another of those Quality metrics from Quant that become part of the Red Diamond Risk calculation.  It looks at the diversification and average weights within a fund, its use of derivatives and its sponsoring firm.  Liquidity also borrows from Quant where we look at bid/ask spreads and average volume but we add a measure for inclusion on the ETFGsm Liquidation Watch List which warns of the ultimate liquidity event.  Finally, our Efficiency score addresses tracking error and expense ratios.

Investors not only consider the return an ETF may provide but also the risk they undertake in holding it.  Our Green Diamond Reward Ratings have done an excellent job predicting those funds that have performed best but our Red Diamond Risk Ratings are merely reflective of a given product’s historical attributes.  They are compiled and change daily although they tend to be more durable than the Reward Ratings which change with the market’s winds.  If you think the market has more to run you might want to look for higher volatility products which is a reason why we break out the sub scores.  ETFGsm doesn't tell you what to do, we give you easy to use tools to make better decisions for yourself.

Wednesday, March 20, 2013

Two foreign funds have broken the US hold on the top 10 this morning, no not Cyprus and Russia.  These two share our language and they both have welcomed stronger currencies.  Would you rather invest in a country with a weakening or a strengthening currency?  They said the sun never sets on the British Empire and when it’s daytime in Canada it’s night in Australia. The iShares MSCI Canada Index Fund (EWC) holds Quant’s 3rd place rank this morning and their Australia Index Fund (EWA) comes in at 10th place.

EWA had been keeping pace with our broad market year to date but a 3% correction this week has dinged its technical score but brought out enough bears to boost its sentiment score.  Combined with a decent 70.3 Fundamental Score leads to today’s 9.72 Green Diamond Reward Rating.  EWC on the other hand has lagged this year which explains its middling Behavioral Score of 67.8 but the market may be missing a gem as it sports a very nice 81.5 Fundamental Score.  Those numbers combine to give EWC and even better 9.88 Green Diamond Reward Rating.  Strong currencies are good for a nation’s financial sector which accounts for almost half of AUM in EWA and more than 35% of EWC.  Materials are EWA’s second largest sector with almost 20% and Energy makes up another 25% of EWC. Besides their strong Reward Ratings, both funds also carry low Red Diamond Risk Ratings of 3.63 for EWA and an even better 3.2 for EWC.

If you are looking for a sugar fueled short term trade you may want to stick with the weakening currencies.  But if you are looking to invest internationally for any meaningful period of time you will have to transfer those foreign currencies back into US dollars eventually.  The Aussie and Loonie have proven to be attractive places for such an investment and our models find other attractive aspects to these funds today.   Both ranked and performed well last fall but EWC began to falter late last year when it fell out of Quant’s top 100 on Christmas Eve. Its performance has had a time out but the fund began to score better early this month so our models suggest it’s ready to join the party again.  Thank you for joining the party here at ETF Global, happy spring!

Tuesday, March 19, 2013

Occasionally we like to take a bird’s eye view of the top 100 ranked funds to see which sectors are scoring best.  The models’ broad market focus continues today as 69 of those are broad market funds devoted to particular market caps or strategies.  That leaves a lesser than usual 31 sector funds to help the top 100 outperform the market.

Beginning at the bottom, we don’t see any financial funds despite performing well recently nor do we see any telecomm or utility funds.  Some utility funds had been gaining ranks as low risk has been scoring better but not today.  Consumer staples also tend to have lower risk ratings and 2 make today’s list with XLP in 51st place.  3 consumer discretionary funds make the list while keeping with Quant’s low risk theme.   XRT leads that group at 45th place with a lower than average 3.57 Red Risk Diamonds.  All the monetary expansion has yet to ignite inflation and basic materials is fading as a favorite sector, 3 funds in that sector make the top 100 led by GDX in 17th place.  Out of 25 funds comprising the ETFGsm Global Health Care Index, 4 make today’s top 100 which seems to be the norm when we do these exercises.  Biotech leads that group with IBB and XBI in 62nd and 77th place this morning.   Getting to the favorite groups, technology has 5 funds in the top 100 and SOXX leads that group as it has most of the year.  Unlike most tech funds, it is leading the market year to date and gets 30th place today.  Industrials have also been leading the market and the 6 funds making that Quant’s second favorite group are all ahead of the market this year.  XLI is the highest ranking at 10th place but the others are smart beta funds that mostly have better looking charts. That brings us to Quant’s favorite sector, energy, with 8 of the 41 funds in its index getting into the top 100.  It’s been the favorite all year led by XOP and XLE in 1st and 6th place.  Both are ahead of the market’s huge run this year.

You can find any sector funds by choosing from the Focus screen in our scanner filter where more than just the 10 S&P sectors are available.  Playing around with the various filter options will show you how powerful the scanner is.  Look at the display fields to include any of our risk and reward ratings, Quant scores, fundamental data, or so much more.  All things you won’t find on any competitors’ screening tools and examples of the value that ETFGsm adds.

Monday, March 18, 2013

Every day, one equity ETF earns the ETFGsm 10 Green Diamond Reward Rating.  Today it’s the Powershares Dynamic MagniQuant Fund (PIQ) which may sound familiar because we highlighted it in our March 6th post about smart beta funds ranking well in Quant.  It was in 11th place then and 7th today (Quant’s rankings differ slightly from the Diamond Ratings).  You may also remember it from back in December when it held Quant’s top rank for three straight days.  It actually earned 10 Green Diamonds on 8 different days in December and if you bought on any of them you are very happy today.  Year to date, PIQ is up about twice as much as the S&P 500 and there aren’t many other ETFs that have done that.

Regular readers know these smart beta funds fill a niche between active and passive management in that they change their portfolios on a periodic basis, quarterly in this case.  The portfolio that scored and performed so well back in December is not the same as the one that was reconstituted in February so concerns about it being overbought may be misplaced.  A look at its tear sheet shows a very healthy Fundamental Score of 89.2 and its sector exposure covers all ten with more than half of AUM in consumer discretionary, financials, and industrials.  The tear sheet also shows all 200 holdings crossing a wide range of market caps but sharing one common attribute, the US flag next to each one.  Yes, the models still favor the US and PIQ’s Red Diamond Risk Rating of 3.99 keeps with the consistent low risk theme we have also been seeing.

We have high hopes for PIQ because it is a new constituent in our own smart beta ETFGsm Quant Equity 10 Index.  Light trading disqualifies it from our Golden Dozen Index but its constituents trade enough to provide sufficient liquidity to meet most needs.   Our 10 Green Diamond funds have an excellent record of outperformance and you can find them each day by clicking on the header to sort the Reward column on our scanner which is one more powerful ETFGsm tool to help you stay ahead of the markets.  Thanks for reading and good luck this week, it looks like it could be a rocky one.

Friday, March 15, 2013

Happy Friday!  It being the third Friday of the month today’s Quant output is more important to us than usual because it is selection day for our smart beta indices.  Today’s top 10 ranking funds will comprise the ETFGsm Quant Equity 10 Index for the next month after going into the index next week.  You can follow that under the Dynamic tab on our home page Index screen or on your Bloomberg terminal under the ticker ETFGQE10.  The other index on that screen is the ETFGsm Golden Dozen with the ticker ETFGQE12.  Designed for institutional managers with liquidity mandates, it is similar to the 10 except it selects the highest 12 ranking funds that have an average daily trading value of at least $5 million.  The YTD performance seen on that screen may not look very special compared to the monster run the market has been on this year but since inception last July both have handily outperformed the S&P 500 and the MSCI All Country World Index.

The YTD performance would have been better if not for the gold miners fund which has come out this time, if Murphy is correct it will now regain all its recent losses.  Not to worry though because Quant has kept the wind at our back otherwise.  The broad US market focus of today’s top rankers will drive performance for the next month with SPY and the iShares S&P 500 Growth Index Fund (IVW) in both indices.  The iShares S&P 500 Index Fund (IVV) also makes the Golden Dozen this month.  Barbelling the broad US market, we see some small cap funds in each as well.  However, there are some distinct differences in the two portfolios this month.  ETFGQE10 will contain three smart beta products from Powershares that do not meet the Golden Dozen’s liquidity requirements.  All three have outperformed the market this year and we hope the leprechaun in the model that stuck us with GDX has overlooked these.  If the Golden Dozen gets back to its outperforming ways it will not only be due to those small caps but also some foreign funds that are beginning to score better.  The SPDR DJ EURO STOXX 50 Fund (FEZ) was a solid performer for us last year and has been working its way back up the rankings lately.  Today’s 11th place overall earns its place in the Golden Dozen.  We also see France and Canada represented with EWQ and EWC where the latter also makes the 10.  You can see all the holdings of all our indices by clicking on any one of them but today’s selections won’t show up until next week’s reconstitution.

Caesar was warned about the ides of March but we hope St Patrick is shining his Irish eyes upon us this month.  ETF Global has built a rainbow over the industry and our performance pages attest to the gold our users have found.  The leprechauns will throw an occasional monkey wrench in the model to keep us humble but Quant has proven to be more powerful than superstitious scapegoats.  So follow the ETFGsm road rising up to meet you leading to miles and miles of Irish smiles.  There’s a beautiful sun rising over Wall Street this morning and we wish you all a Happy St Patrick’s Day.

Thursday, March 14, 2013

The bells toll and Pope Francis says all you need is love.  At ETFGsm we love supporting your ETF investment decisions and with Quant helping us learn how to play the game it’s easy, at least when you are in a market melt up. Quant is still shining its love on the leading broad US market with the top 19 funds all being US based, except for a tiny sliver of today’s 2nd place Market Vectors Gold Miners Fund (GDX).  Yes like Francis, Quant saves some of its love for the downtrodden.  Looking at the  top 25 ranks today we see 5 iShares Russell funds covering the market cap spectrum (IWO, IWB, IWM, IWD, IWV), the 3 funds tracking the S&P 500 (SPY, IVV, VOO), another tracking the midcap 400 (MDY), Vanguard’s Value, Growth and Smallcap Growth funds (VTV, VUG, VBK) and the iShares MSCI USA Minimum Volatility Index Fund (USMV).  That’s a clear expression of Quant’s current love for the broad US market.

There’s nothing you can know that isn’t known and nothing you can see that isn’t shown but quantitative analysis cuts though the noise and our personal emotions to help us find the hidden gems among all the choices.  Outperforming those broad market funds is not so easy but the model has also highlighted some sectors and regions for us. In addition to those gold miners, Quant’s love for the 4th place SPDR S&P Oil & Gas Exploration & Production Fund (XOP) is unshaken and has spilled over to the iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (IEO) rising 74 positions into 13th place this morning.  The 10th place SPDR Industrial Select Sector Fund (XLI) also remains in Quant’s good graces and the iShares Dow Jones U.S. Technology Index Fund (IYW) has worked its way back up to 25th place today. Two other countries make the top 25 with iShares’ MSCI France and Canada Index Funds (EWQ, EWC) in 20th and 21st place.

It may be easy when the market hits new highs every day but the past nine months have not been so linear.  Newer users of ETFGsm might think our models are weighted towards the broad US market as 2013 has seen little movement overall in the elite rankings.  Our charter members who came on last summer remember those top ranks being populated by European funds which were gradually replaced with emerging market funds in the fall.  Quant’s current love affair with America emerged when the fiscal cliff fears were driving our market into the slums late last year.  Any advisor or manager knows it’s not easy to spot those market shifts and like that Jewish carpenter who Francis devoted himself to, you need tools.  ETF Global has developed those tools to keep your portfolios straight and on the level and we thank you for helping us spread the word.  We wish Pope Francis Godspeed as he begins his “journey of brotherhood in love”.   

Wednesday, March 13, 2013

The broad US market has been the story thus far in 2013 and Quant’s upper ranks have highlighted various large cap and small cap funds that have been among the world’s best performers.  Today we see some mid cap funds getting their turn in the top 10.  Today’s 10th place SPDR S&P MidCap 400 Fund (MDY) got as high as 9th place last week, its highest rank this year, and the 8th place iShares S&P MidCap 400 Growth Index Fund (IJK) achieves the top 10 for the first time in 2013.  While new to the top 10, both funds have been ranking well as they keep pace with the market’s historic melt up.

That rally has kept their technical scores strong at around 70 for each with plenty of market skepticism also keeping their sentiment scores at elevated levels.  Fundamentally both score well with IJK’s 72 Fundamental Score beating MDY’s 66.5 even though the latter is cheaper on most metrics.  The lower score is attributable to MDY’s longer lifespan which includes more data points to compare against.  A look at each tear sheet differentiates the two.  The higher ranking IJK holds more than half its AUM in info tech, industrials and consumer discretionary where MDY’s top three sectors see more than half of AUM in financials, industrials and info tech.  So your preference between financials and consumer discretionary should drive your decision more than 2 places in Quant’s rankings.  IJK gets the higher Green Diamond Reward Rating of 9.13 but MDY’s 8.87 is very close.  The weightings in financials versus consumer discretionary could account for MDY’s higher Red Diamond Risk Rating of 4.56 compared to IJK’s 4.09.  Regular readers will notice those Risk Ratings are higher than Quant’s recent high rankers and they have brought the average of the top 10 up to 3.85 which is still low compared to today’s all equity fund average of 4.58.

Whether the melt up continues or not, Quant says these two funds will outperform most others in the next few months.  Their Behavioral Scores account for their rise in the ranks which may suggest the market is looking to broaden out to riskier names.  Only time will tell but we have been waiting for some turnover in the top ranks which have been remarkably stable since late last year.  We’re glad that stability has been in the sweet spot of the market and we are on the lookout for the next sector or region that rises in the ranks.  So check in each day for the latest on what Quant has to say.

Tuesday, March 12, 2013

As the Swiss Guards protect the privacy of the papal conclave in the magnificent Sistine Chapel, we have a Vanguard fund in today’s top 10.  No funny looking suit on the 7th place Vanguard Growth Index Fund though.  Replicating the MSCI US Prime Market Growth Index, VUG holds all 410 positions at their respective index weights.  While those Swiss guards wear the traditional Medici blue, red and yellow, VUG’s tear sheet has pie charts resembling the myriad colored ribbons of a US general’s uniform.

Its 33% weighting in info tech with almost 9% in Apple hasn’t hurt performance too much.  Year to date it is up about 8% compared to the S&P 500’s 9% but it is tracking that benchmark tightly on this latest leg up since February 25th.  The other colors on those pie charts represent holdings in all 10 S&P sectors where consumer discretionary, industrials, consumer staples and health care also have weightings above 10%.  The constituent list shows a who’s who of US large cap companies and you will have to dig deep before seeing a name you don’t recognize.  All that diversification combined with Vanguard’s heft provides a high Quality Score of 90.9 and its other metrics are formidable too.  Fully participating in the explosive broad market US rally translates into a very nice 71.9 technical score which hasn’t hurt its also strong 70.9 Fundamental Score.  What’s new today is the higher than normal 68.9 sentiment score getting a boost from a jump in its put/call score up to 93.  All that figures into VUG’s striking 9.27 Green Diamond Reward Rating with only 3.01 Red Risk Diamonds, keeping with Quant’s current low risk theme.

Our prayers are with those cardinals in the Sistine Chapel as they choose the next leader of the world’s more than 1 billion Catholics, but investing requires more than faith.  It requires vigorous self examination of one’s objectives and risk tolerance and an asset allocation strategy that fits both.  Once you decide on your equity allocation, Quant provides a proven tool for achieving your objectives.  Our top ranked funds consistently outperform the rest and Quant points to the Vanguard Growth Index fund (VUG) as one of those today. For your allocations to other asset classes, our Red Diamond Risk Ratings will help you keep within your tolerances.   As those Swiss Guards support the Vatican conclave, ETFGsm is pleased to support your investment decisions.  If you need any guidance beyond what you see on the site please contact us at  for personal help. At ETF Globalsm we appreciate the faith you place in us.

Monday, March 11, 2013

For most of 2013 we have seen the SPDR S&P Oil & Gas Exploration & Production Fund (XOP) in one of Quant’s top 3 positions and the SPDR Industrial Select Sector Fund (XLI) in the top 10, today they hold 1st and 4th place.  The rest of the top 10 have been populated by broad market US funds tracking the S&P 500 or Russell indices and a number of Powershares smart beta funds.  A glance at our Quant page shows that is still the case.  Maybe we will get some movement today to tell you about tomorrow but in the meantime we want to remind you about the ETFGsm Liquidation Watch List.

The monthly report was published on the publicly available part of our website last week and shows 45 products meeting the three criteria for inclusion.  Our screens found 233 products with less than $5 million in AUM, often seen as the threshold of profitability, and 1,080 that have been around for at least 2 years, the amount of time a sponsor will usually give a new product to earn its place in the market.  The market tends to shun losers so the third criterion is negative performance for the trailing twelve months which turned up 311 products for the March list.  The 45 that made the list are typical in being among the more esoteric types.  23 are inverse, 6 more are leveraged and some of those 29 are among the 17 ETNs.  Only 2 are traditional equity ETFs and neither gets above 7 Green Reward Diamonds.  All products get Red Diamond Risk Ratings and the average for the group is 6.86 which gets skewed down by a few currency and fixed income products which tend to have lower Risk Ratings.

We like to say inclusion on the list does not guarantee closure and exclusion does not guarantee longevity, we are simply alerting you to things that may not appear in your other research.  Many funds close without appearing on the list due to strategic decisions made by sponsors like Russell last summer and Guggenheim last month.  Those nine Guggenheim funds will be closing this week so you only have a short term trade remaining.  If you are looking to invest for the intermediate term and beyond, the Quant list is where you want to look.  Since inception last summer it has consistently identified the top performers in the marketplace.  The model called Europe last summer, China and other emerging markets in the fall and has been focused on broad US market funds since late last year continuing to this day.  We’ll see what this week brings and we hope you have a good one.

Friday, March 8, 2013

Time for some more self immolation on this Lenten Friday, yes GDX is back in the top 10 at 7th place.  The Market Vectors Gold Miners Fund had been scoring at the top for months but lately it’s been living underground and eating from a can.  It got as low as 92nd place yesterday but shot up 85 places overnight.  We don’t run away from what we don’t understand, we know Quant moves in mysterious ways.

The fund has been slipping and sliding down through most of 2013 after marking a death cross in January.  At 89.8 today, the Fundamental Score has been better than alright, and as the share price has taken a dive its sentiment score remains elevated at 80.1. Global Theme and Quality Scores are OK in the 60s and stable.  It’s the technical score that is most mysterious.  After hitting the ground at 10 three days ago it has risen to a still poor 45.5 but a rise whose pale light has lit up Quant’s room.  The fund hit a new low on Wednesday morning but rose for the rest of the day and held most of those gains yesterday.  That has lifted its intermediate term technical score from a horrible 0.9 to 36.1 today. The short term technicals have risen from 4.4 to 44 and long term rose from 18 to 51.8.  Nothing special about those levels but the deltas are notable.  The technical scores are among Quant’s more complex computations involving a series of figures for each one which are then weighted in a proprietary way to get today’s overall 45.5 technical score.

We do a lot of bragging in this space about Quant’s performance and it’s been stellar even with GDX in the top ranks lately, so let’s call it the exception that proves the rule.  We hope this one will eventually take a walk on the moon but like Bono says, if you want to kiss the sky better learn how to kneel.  We understand if you want to watch GDX and its higher than average 5.46 Risk Rating from the sidelines but Quant says it’s alright and its 9.77 Reward Rating will eventually lift our days and light up our nights.  Yes, she moves in mysterious ways.  We need to go shovel the snow that’s covering Wall Street this morning, thanks for reading and have a nice weekend. 

Thursday, March 7, 2013

So maybe Carl Ichan is responsible for the 40% year to date gain in Dell. The investor announced taking a 6% stake in the computer company with an eye towards scuttling the proposed buyout by the firm’s founder Michael Dell.  Other shareholders have expressed misgivings about the low price being offered.  So what is a shareholder to do when management has the incentive to drive the share price lower?  Should you hold the equity with hopes that dissident shareholders can get a higher price?

We don’t have opinions on such questions but if you are wondering which ETFs have the largest exposure to Dell Inc. check out its ETFGsm Grey Market Report by entering the ticker DELL (or any other ticker) in the upper right search box.  In another way of differentiating ourselves from the competition, we go beyond just those ETFs that hold the shares and show all those that track an index which includes the company.  A leveraged or inverse fund tracking such an index is unlikely to actually hold the shares but people are hedging their positions somewhere along the line.  That’s why we show all those funds and various data points to help you make your own assessment.  Like most pages on our site, you can click on any column header to sort in either ascending or descending order.  In the summary above all that granular detail we show the aggregated long, short, net and absolute exposure as dollar values and percentages of market capitalization.

We’ll let you decide if the stock affects the funds or the other way around.  Our Equity Grey Market Report is just one way we serve even those managers who don’t use ETFs.  We also get positive feedback from such managers who like to follow Quant’s rankings for ideas on sector and regional allocation.  Those investors know that even if you do not use ETFs you can’t ignore them.  We’re glad you don’t ignore us and we’ll take another look at Quant’s favorite names again tomorrow. 

Wednesday, March 6, 2013

Woe is the algorithm trying to beat the world leading S&P 500 in 2013.  Quant doesn't feel pain though, it just calculates which equity ETFs have the characteristics common to funds that outperform the rest.  Today it has set its sights on 4 smart beta funds in or near the top 10.  The 6th place Powershares Buyback Achievers Fund (PKW) is new to the top ranks but their 7th place Powershares XTF: Dynamic Market Portfolio (PWC) is familiar, as are the 10th and 11th place Powershares XTF: Dynamic OTC Portfolio (PWO) and the Powershares Dynamic MagniQuant Fund (PIQ). 

All four represent the burgeoning smart beta category where the portfolio changes periodically and all four are beating the S&P 500 year to date.  The newly elite PKW buys US companies that have repurchased at least 5% of their outstanding shares for the trailing twelve months.  It is unlike the others in that its portfolio is reconstituted annually with quarterly rebalancing.  The other three have quarterly reconstitutions that select companies from their respective markets that show superior risk reward characteristics.  Quant agrees with their model today giving all four more than 9 Green Reward Diamonds with less than 4 Red Risk Diamonds, PWO is today’s sole ETFGsm 10 Green Diamond fund.  Since they are all ahead of the market YTD, it is not surprising to see their strong technical scores combined with middling sentiment scores.  Not many investors want to stand in front of moving trains in this market so short interest and put activity are low for the group which helps explain their also low implied volatility.  What is surprising is that funds that have performed so well are still trading so inexpensively, all four have very strong Fundamental Scores near 90.

As our competitors debate the active vs. passive issue, smart beta is stealing the show.  Fear not the new, these funds are not as complex as their names suggests and with the help of ETFGsm you can see everything the funds hold, simple equities with no derivatives or swaps.  That’s a much more transparent box than your typical open end mutual fund.  So when your clients want to beat the world leading S&P 500 where can you turn?  Quant says these smart beta funds will get the job done over the next few months.

Tuesday, March 5, 2013

In the aftermath of the post election correction last fall, Quant began to turn its focus to the US market.  We kicked off the holiday shopping season with 4 broad US Russell funds in the top ten on that Thanksgiving Friday and the following week we began to see the now familiar S&P 500 funds gaining top ranks.  By December 4th we realized it was going to be difficult to maintain our huge outperformance versus the S&P with three funds tracking the index in the top ten.  Santa brought his rally with those same Russell and S&P funds that represent the broad US market and were consistently earning top ranks.  The same story carried into the New Year with some energy funds joining the party and giving us a chance to outperform the index, and they did not disappoint.

Having all those broad US funds in the top ranks did make it difficult to beat the S&P 500 and our performance has come down from the stratosphere but is still in the clouds.  ETF Global is that rare firm that actually keeps track of how its top ranked funds perform and reports the results to our users and anyone else who wants to know.  On the publicly available part of our site you can see how our Green Diamond Reward Ratings and our Quant rankings have performed since inception last summer, suffice to say very well.  If your buy list comprises funds scoring 8 Green Diamonds or better, over a few months you have likely beaten the S&P 500 around 77% of the time, outperforming the index by about 50% on average.  The Quant performance report groups the funds differently but shows similar returns.

We would prefer to still be doubling the S&P 500 or better almost 90% of the time like before, but when the index is outperforming most others we are glad to be riding the lead horse.  That was Europe and emerging markets for periods last year and our models proved to be very nimble in recognizing shifts in the marketplace.  They haven’t all been winners as some high ranking tech funds lagged but they tended to be ones with lower Apple weightings than most and a couple of smart beta tech funds even outperformed.   The gold miners in GDX have been a sore point but that is a dandelion in a field of daisies (and still ranks in the top 100).  The model also passed on nice moves in financials and retail, the former still ranks poorly but retail has been gaining on improving technical scores.  Today’s top 10 basically looks like it has since the holidays comprising those three S&P 500 funds, 4 broad US Russell funds, with XOP and two smart beta funds rounding out the 10; all ten have lower than average Risk Ratings.  If you would like a personal tutorial on our ratings please send us an email to Ratings that perform combined with personal attention to our clients are just two of the ways ETFGsm adds value to your investment decision process.

Monday, March 4, 2013

80 years ago today, FDR said “the only thing we have to fear is fear itself.”  Life was simpler back then, today we have to fear bad meat, planes falling from the skies, unsupervised children, starving old folks and other calamities brought on by a 2.3% reduction from the expected level of federal spending.  Like it was during the last crisis 2 months ago, Quant is unmoved by this one.  The S&P 500 still leads the ranks with SPY and IVV in 1st and 2nd place.  Energy continues to be the favorite sector with XOP and XLE in 3rd and 4th.  Quant is also unmoved from its low risk stance with today’s top 10 having an average Red Diamond Risk Rating of only 3.78 compared to 4.6 for all equity ETFs.  Is there something else to fear like China or Italy?

One low risk fund that has been climbing the ranks recently is the SPDR Utilities Select Sector Fund (XLU) getting into the top 50 at 49th place today.  It got up around this level when it continued to rise as the S&P faltered over the last two weeks.  That has helped it achieve a decent 75.3 technical score with its short term 85.3 leading those categories.  Fundamentals are good but not great at 66.7 with a similar sentiment score leaving plenty of room for all to improve.  The metrics are good enough to earn a solid 8.36 Green Diamond Reward Rating and if there are darker hours ahead you can rest easy with its very low 1.39 Red Diamond Risk Rating.

Only a foolish optimist can deny the dark realities of the moment but Quant thinks the S&P 500 will remain as the place to be in coming months. Those S&P 500 and energy funds have been holding top ranks since late last year and they have led the world equity markets since then.  That will bring our comparison to that benchmark down when we publish the monthly updates but we are proud to be directing you to the sweet spots of the market on a consistent basis.  Financial professionals have registered a mandate that they want direct and clear ratings based on vigorous analytics.  ETFGsm is providing the leadership the industry is calling for.  Thank you for reading and good luck with the sequester. 

Friday, March 1, 2013

As the ETF world debates the merits of actively managed versus passive funds, the new smart beta space is growing right in front of their eyes.  The term refers to funds that select their holdings, usually by way of a quantitative model, on a periodic basis and hold them through the period until the next selection date.    Some of these funds have been very successful in gathering assets and growing them nicely and two of them are in today’s top 10.  The Powershares XTF: Dynamic Market Portfolio ETF (PWC) and the Powershares Dynamic LargeCap Growth ETF (PWB) are in 7th and 8th place this morning.

Both funds had their quarterly selections in February and Quant likes the new holdings. PWC’s new portfolio is weighted towards energy and technology and we know Quant has been looking favorably on those sectors lately.  Its’ next two largest sector holdings are in financials and consumer discretionary which have not been populating the upper ranks of late but have also been attractive enough to comprise two of PWBs top three sectors with technology rounding out that last third.  Quant isn't the only one who likes them as their middling sentiment scores in the 50s reflect scant bearishness towards both funds.  That usually means the technical measures come in better and low 70s scores in that category for each are very decent.  It’s their Fundamental Scores in the 90s that account for their positions in today’s top 10 as they are the second and third best in that category.  The last reconstitution in November did better for PWC than for PWB and aside from validating the merits of the model that doesn't matter much now with their new holdings.  In fact, the lagging PWB has the distinction of earning today’s sole 10 Green Diamond Reward Rating, but PWC is no slouch with a 9.78.  Both funds also confirm Quant’s low risk focus with PWC coming in at 4.01 Red Diamonds but PWB much lower at 2.29 which is a risk number typical of bond funds.

We must admit to having a fondness for these funds as we are obviously believers in the quantitative method of investing; but you can rest assured that our Quant model has no such bias which is the whole point of quantitative investing.  Now that ETFGsm has launched our own smart beta indices it will be nice to see how these funds perform against them.  If our indices ever lead to products you won’t see them rank highly however as they would be ETFs of ETFs which do not get scored in our model.  In case you were wondering, that is why you don’t see many of the other smart beta products in our rankings (that and the fact that most of the others are mixed asset classes which also do not get scored in Quant.)  If you are not ready to commit assets to the smart beta space, we suggest you at least keep your eye on these funds and meanwhile keep the other eye on our smart beta indices.  As other sites debate trends that may happen, the smart beta trend is thriving.  Thank you for helping us thrive and have a nice weekend.