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!

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