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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