Friday, May 17, 2013

With energy and foreign funds scoring better, you might think the ETFGsm models are selecting higher risk funds to outperform over coming months but the opposite is the case.   7 of Quant’s top 10 fit those categories  but the average Red Diamond Risk Rating of the 10 is a low 3.79 compared to today’s all equity ETF average of 4.49.  Part of the reason is the relative risk of the equity ETF category has come down recently in our all product reflective risk model but the predictive reward models are also choosing the lower risk among them.

The 3 energy funds we wrote about on Monday are the exceptions along with the iShares MSCI Spain Index Fund (EWP) in 7th place with 4.89 Red Diamonds.  All 4 have higher than average Risk Ratings and have lagged the S&P 500 most of the year so that risk may have already been realized.  Their relative outperformance over the last month however has put them in the elite group.  The other 3 foreign funds that we wrote about yesterday, EWL, EWC, and EWA in 3rd, 5th and 8th place all bring that average Risk Rating down and have yet to show the outperformance that their high ranks predict.

Our Risk Ratings are not predictive but we like to highlight those times when the average of the top ranked funds comes down like it has today.  We see it as a cautionary signal but the elimination of risk in 2013’s straight up market has rendered risk analysis meaningless, for now anyway.  For those who still believe in risk management, The ETFGsm models suggest now is one of those times to pay close attention.  For the rest who have been correct to eschew risk this year, in Bernanke we trust.  Spring has finally sprung on Wall Street so we’ll keep it brief today, enjoy the weather and have a nice weekend.

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