Tuesday, August 6, 2013

Quant Likes Smart Beta

PowerShares had their quarterly reconstitutions and Quant sees a lot to like.   We refer to their Dynamic series of smart beta funds that select new portfolios every quarter using an algorithm to calculate various technical and fundamental data points.  3 funds tracking NYSE Intellidex sector indices make today’s top 10 with another in 11th place.  All 4 moved into the elite ranks on sharply higher Fundamental Scores reflecting their new portfolios.

The financial fund, PFI, ranks best at 7th place on an 85.8 Fundamental Score showing the portfolio is cheap on a cash flow, book value and yield basis but not as impressive on earnings.  The first 3 score in the mid 90s and PE scores 55.  None of these funds have options so their put/call scores default to 50 but PFI’s other sentiment readings are enough to score an OK 61.4.  Its marginally better 66.1 technical score combines for a 63.8 Behavioral Score which reflects fund level data rather than the constituents.  In 8th place, PXE tracks the energy E&P sector with a 71.3 Fundamental Score driven by a 96.7 cash flow score.  On the Behavioral side, it gets a 65.1 with a closer balance between technicals and sentiment.  Their networking fund in 9th place, PXQ, is all technicals on the Behavioral side with its 53.9 sentiment score reflecting the bears’ disinterest in the face of a decent 71.4 technical score.  The market’s wisdom is reflected in the fund’s 80 Fundamental Score.  The broad energy sector fund, PXI, has been quietly climbing the ranks until getting a boost to 11th place today from its Fundamental Score rising to 71.2 after getting its new portfolio.  Technicals and sentiment are high 60s across the board except for its 50 put/call score.

Quant has lost its affection for the PowerShares Dynamic OTC Portfolio Fund (PWO) which dominated the model in the spring and early summer and has performed so well.  Its sentiment score has dropped to 38.4 and technicals are still strong at 73.1 but falling as the long term deteriorates.  Fundamentals fell from 80.6 to 71.4 on the new portfolio which resulted in the fund falling down to 182nd place today.  We don’t give sell signals in this space because every investor has different objectives but this could be a good swap candidate for those who have done so well with it.  Thanks for checking in today with ETF Global®.  

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