Wednesday, May 15, 2013

Quant’s favorite fund of 2013 has been the SPDR S&P 500 Fund (SPY) but the Green Diamond Reward model has favored the PowerShares Dynamic OTC Portfolio Fund (PWO) more than any other this year.  It gets today’s 10 Green Diamond distinction for the 34th time since January 4th and the 25th time since April 3rd, all but 7 days since then.  Numbers like that command attention and PWO has gotten quite a bit in this space this year.

After a couple of mentions in January we highlighted it with some related smart beta funds on February 1st when we noticed it was a rare OTC fund that did not own Apple.  That was a signal that their model works but the chart speaks loudly enough.  Not many funds are ahead of the S&P 500’s almost 16% year to date run but PWO beats it by more than 5%.  Steering clear of Apple early this year helped but the portfolio changes quarterly and has been nimble in its selections that cross various market capitalizations and styles while underweighting tech versus the NASDAQ 100, albeit still at half of AUM.  May 1st was one of those few recent days when it did not earn all 10 Green Diamonds and we mentioned a deteriorating short term technical score as a red flag, nevermind, the green flag is back out with a high 77.9 short term score today.  It got back to 10 Green Diamonds on May 3rd and has held them since then.

ETFGsm ratings and scores change daily and PWO’s 4.63 Red Diamond Risk Rating has been more volatile than most.  Some of Quant’s qualitative measures contribute to the Risk Ratings which get broken out on their page under the Analytics button.  We mentioned PWO’s high liquidity risk on May 5th when the fund’s overall Risk Rating was below 4 but it is now above today’s all equity fund average of 4.62, still nothing to lose sleep over.  Our Risk Ratings are not predictive but reflective and when a fund performs so well its trading bands widen which elevate the volatility and deviation risk scores.

Regular readers know our fondness for smart beta funds and PowerShares has a few that confirm the merits of the quantitative method.  It is not just about big data and fast processors but algorithms that recognize the conditions prevalent in selections that outperform.  We are happy to write so often about PWO which has consistently confirmed the merits of the ETFGsm quantitative models by performing so well for our clients.

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