Friday, July 19, 2013

After two days of Bernanke and the Congress getting along so well, the S&P 500 is at a new high and markets around the world are rallying.  And earnings are up, above expectations anyway.   It is enough to put risk back on our minds and nobody offers more comprehensive risk analytics on exchange traded products than ETF Global®.  Quant is undeterred as today’s top 10 are skewed towards higher risk issues bringing their average Red Diamond Risk Rating up to 5.53 compared to today’s all equity ETF average of 4.83, both numbers are higher than usual.  For example, today’s 9th place EGShares India Consumer Fund (INCO) gets an excellent 9.61 Green Diamond Reward Rating but it carries high risk with a 7.72 Red Diamond Risk Rating.  That is in the neighborhood of leveraged and inverse funds which you can see on the Red Diamond Risk Rating page found under the Analytics button.

The page appears with the highest Risk Ratings up top but you can sort by any of the six subcategories or ticker or description.  Entering INCO in the search box will winnow the list to the products containing those letters (in this case including a bunch of income funds).  Behind the six sub categories are 15 proprietary calculations of dozens of daily metrics reflecting a product’s integrity and historical price data.

Looking closely at INCO we can see the biggest driver of its 7.72 Risk Rating is its high Liquidity Risk at 9.67 resulting from its wide bid ask spread and low trading volume, so use limit orders when trading it.  If you are more interested in price risk you will notice its 6.15 Volatility Risk is higher than its 4.9 Deviation Risk suggesting this would be a good way to ride a rally.  The elevated Country and Structure Risk reflect India’s quantitative ranking in our models and the fund holding only 30 constituents with one accounting for more than 10% of AUM.

ETFG® Risk Ratings are reflective of a product’s composition and trading but not predictive like our Quant scores and Reward Ratings.  Also unlike the other models, the Risk Ratings apply to all exchange traded products like those leveraged and inverse ones in INCO’s neighborhood.  Only ETF Global® breaks out risk from reward and offers such granularity in how we reach our ratings.  Please send any questions to and have a nice weekend.

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