Wednesday, June 12, 2013

Every day, one equity ETF gets the 10 Green Diamond Reward Rating as the fund with the single best prospects for the next few months.  For the last few months it has mostly been the PowerShares Dynamic OTC Portfolio Fund (PWO).  We have written about it extensively this year as its ratings and performance have commanded attention.  It got its first 10 Green Diamond Reward Rating on January 4th and is up 17.88% compared to the S&P 500’s 10.88% rise since then.

We wrote about it then and again on April 5th explaining how its smart beta selection process changes the portfolio every quarter,  May’s reconstitution has maintained the top three sectors in info tech, consumer discretionary and health care with the first two at lower weights than the NASDAQ 100.  The biggest difference from that benchmark is the absence of Apple from PWO’s constituents which tend to be lower market caps although large cap Cisco Systems occupies more than 3% of AUM.

On April 12th we compared its technical scores to SPY’s which has also led the ranks this year, and on May 3rd we wrote about PWO’s low liquidity advising to use limit orders.  Its constituents are plenty liquid which ultimately determines an ETF’s liquidity so don’t be scared off by its low trading volume.  Then on May 15th we reviewed these posts and added commentary on the fund’s Red Diamond Risk Rating, lower than average at 3.75 today.  You can review any of those posts but there is one topic we have not covered yet.

PWO has been the 10 Green Diamond fund every day except one since May 3rd, an unprecedented streak since our inception last July.  For many of those days it has dominated the model so much that there have been no 9 Green Diamond funds, a typical distribution would see about 15.  That means that no other fund came close in the algorithm’s calculations.   IYW gets a 9.27 Reward Rating today but it is the only 9.

We have said we like to write about PWO since it has performed so well and we also like to write about smart beta because it is at the heart of ETF Globalsm.  However, the nature of quantitative analysis is that our personal fondness has nothing to do with the scores and ratings which are free of any human emotion.   Today’s volatile world markets make that an even more powerful and important selection method.

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