Monday, September 9, 2013

Silver Fox Creeping Higher

After a brutal 2½ year bear market, today's 2nd place Global X Silver Miners Fund (SIL) is up more than 35% since breaking into Quant’s top 100 on June 24th, near its low point.  If you waited for it to break into the top 10 a few days later you are still enjoying strong gains only a couple of percent less.  Our models say it is just beginning as SIL is today’s 10 Green Diamond Fund for the first time.  It has had a volatile ride in the rankings but has scored well enough to also be a constituent this month in the ETFG Quant Equity 10 Index, one of our smart beta indices compiled by Solactive who also calculate SIL’s underlying index.  It does not meet the liquidity requirements for the Golden Dozen and even its constituents would fail liquidity tests for some mangers.

Those liquidity characteristics contribute to its 6.19 Red Diamond Risk Rating which is higher than most equity ETFs. Its 65% drawdown since April 2011 also plays a role in that.  Such price volatility has fed into its Quant scores where its rocky ride in the rankings mostly results from choppy option activity moving its sentiment score widely.  Scoring 87.8 on put/call today gets that sentiment score to 84.3 which is better than its combined technical score of 49.3.  A pretty 3 month chart masks the bruises of the past 2½ years but Quant sees all.  Although the miners did not enjoy the big price gains of the underlying metal in recent years, they suffered through the pullback since late last year.  They must have shared in the profits because SIL carries a strong 81.5 Fundamental Score thanks to 98.1 in both earnings and cash flow.  Book value and yield both score in the 60s so they haven’t been immune from the metal’s volatility.

ETF Global’s® quantitative models are designed to highlight opportunities that would otherwise be overlooked.  Some top ranking funds get there by performing well but some get there after suffering setbacks like SIL has.  It is not just about having good fundamental value but also behavioral characteristics that signal outperformance to come.  SIL resides in that sweet spot today and we will keep an eye on its technicals for more solid scores to come. Congratulations to Serena Williams for her 5th opportunity to hoist the silver cup in Queens as US Open Champion.

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