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.

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