Apple reports its first profit drop in a decade but the stock is up pre-market, as is the S&P 500 whose aggregate earnings are on track for their second decline in three quarters. Europe’s economies are imploding, even bringing Germany’s PMI below the crucial 50 mark but their markets are rising on hopes of ECB printing. China’s PMI is barely above 50 as they fight the inflation being fanned by Bank of Japan Governor Kuroda scattering yen from the back of his Toyota. Other emerging economies are slowing in the same inflation battle even as resource based economies see commodity prices plummeting. Through it all we hear about our “low tail risk” environment, the swan is shaking her tail feathers but none appear to be black.
If 2008 makes you skeptical of Wall Street’s modern risk models, you can rest assured that ETF Global’s Red Diamond Risk Ratings do not include monetary policy in any of the 15 metrics we score each day. They are grouped into 6 categories under the Analytics button where Volatility includes our proprietary ETFGsm Implied Volatility score and a couple of other industry standards, while Deviation also includes common metrics weighted towards downside deviation. Country is the score from Quant and Structure borrows other metrics from Quant regarding diversification, sponsoring firm and use of derivatives. Liquidity is also a compilation of industry standards and includes our Liquidation Watch List while Efficiency looks at tracking error and expense ratios.
You can see the weightings of each category at the bottom of the page and can click on their column headers to sort by any of them (a feature available through most of etfg.com). You won’t be surprised to see the highest Red Diamond Risk Ratings distributed among the leveraged and inverse population. Bulls or bears can sort by Volatility to see which funds should expect the best ride or best place to hide. If you want to see how a particular fund scores, sort by ticker or description or enter part of either in the search box. Entering “gold” in the search box brings up 30 different products tracking the bullion, miners or various derivatives tracking both.
Risk has a way of making itself felt when least expected so don’t be lulled by the low tail risk models. The ETFGsm Red Diamond Risk Ratings are quantitative and objective where all exchange traded products are cross ranked against each other. Whether you are concerned about the price of an ETF or its integrity, ETF Global gives you what you need to fully assess how a given product fits into your own risk tolerance guidelines. As always, send any questions to firstname.lastname@example.org.