Quant’s recent affection for the emerging markets has been well documented here at Daily Perspectives but we must admit to being anxious when some of those top ranking funds underperformed in late August. One of them, the WisdomTree Emerging Markets Equity Income Fund (DEM), ranked as high as 4th place on August 13th but fell out of the top 100 on the 28th where it remained until last night. Today it is one of Quant’s big movers gaining 107 positions into 6th place.
Moves like that are more common among smaller funds than $5 billion ones like this because they have less liquid options and share lending markets leading to more volatile sentiment scores. DEM’s put/call score has ranged from 41 to 91 over the past month and is at 68.4 today. Our new Fund Statistics Tearsheet tab shows yesterday’s option volume registering in the dozens of contracts compared to thousands for similarly sized EM funds. Also resembling a smaller fund, short interest has ranged an even wider 57.4 to today’s low of 14.7. Implied volatility has been more stable around today’s score of 71.9. Fundamentals are still solid at 78.8 although off their recent high of 90.2 with cash flow and yield both scoring in the high 90s. Most responsible for the big move is its technical score jumping from yesterday’s 40.5 to today’s 70.8, not so much because it was up 50 bps yesterday but that it held a 10% gain from the August 27th low. The algorithm was apparently skeptical about that rally until today.
We were not as skeptical because we saw other EM funds scoring better after getting dinged in August. Highlighting 4 others on the 26th we channeled Karen Carpenter declaring the rally has only just begun. They got beaten down by the war drums over the next couple of days but that too seems to have passed. The remaining threat is Fed tapering and we have noticed the Fed balance sheet growing below the $85 billion monthly rate in recent weeks but remember, tapering does not mean tightening. Emerging markets do carry more risk and DEM’s 6.02 Red Diamond Risk Rating is above today’s all equity ETF average of 4.6 but less than most other EM funds. Today’s 9.51 Green Diamond Reward Rating suggests it is a good time to assume that risk. Thanks for reading ETFGsm Daily Perspectives on this solemn day.