Wednesday, April 3, 2013

Everyone likes to think about the reward an investment may bring but subconsciously or not we also consider the risk of adverse results.   Only ETFGsm breaks out its ratings in that way and our Green Diamond Reward Ratings have done an excellent job keeping our clients in the sweet spots of the market.  Our Red Diamond Risk Ratings are not predictive of future performance but reflective of a given product’s trading history and composition.  However, as a group they can convey other interesting information.

When we sorted the daily scanner output by highest Quant Score this morning we noticed a lot of low Risk Ratings up top. Low risk is good but when the funds predicted to outperform are lower risk, it could signal a market top. Today’s average for the top 10 is only 3.5, about as low as we have ever seen.  Comparing the ones below that average, we see Malaysia’s EWM (see yesterday) with only 1.93 today and Switzerland’s EWL with only 2.56.  We wrote about EWL on January 22nd saying it has outperformed whenever ranking as high as the teens and that record remains intact.   The other funds on that Compare screen, IVW IWV and IWB, track the S&P 500 Growth Index and the Russell 3000 and 1000, the kind of US broad market funds that have been scoring and performing so well all year.  Clicking the Quant Report button shows the group sharing strong technical scores in the 70s with lower sentiment scores in the 60s which could be a cautionary signal of an overly complacent market.  However the also strong Fundamental Scores say valuations are not yet stretched.

So as the US market has enjoyed a world leading 10% quarter, it has been driven by the lower risk segments of the market, pretty sweet.  Looking at the full Red Diamond Risk Ratings for the various high rankers shows a variety of reasons for their low overall Risk Ratings but consistently low Country Risk.  If you think we have further to run you can see some with higher volatility and deviation scores, or choose one with lower scores in those categories if you interpret the low average among the top ranks as a red flag.  The beauty of quantitative analysis is not that it tells you what to do, it gives you tools and information to make better decisions for yourself.  Thank you for deciding to use ETF Global’s market leading tools.

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