Juncture to Assess Risk

With the State of the Union Address comes a variety of debates around challenges, strategies and opportunities for our Country and economy.  We all hope for the most immediate and constructive resolutions to these big impact issues, but in the interim, junctures like these provide the opportunity to update our understanding of the risk inherent in our respective portfolios.

For those that hold Exchange-Traded-Funds, our Red Diamond Risk Ratings are meant to do just that.  The ETFG Red Diamond Risk Ratings measure two primary risk categories:  Price Risk and Integrity Risk which are equally weighted in the overall risk rating. 

Price Risk calculates 7 equally weighted underlying measurements covering such aspects as volatility and deviation.  Integrity Risk calculates 8 equally weighted underlying measurements regarding the structure and trading characteristics of the security and the quality of its sponsor. 

For Portfolio and Wealth Managers, perhaps the most useful application for Risk is the ETFG Portfolio Tearsheet which allows up to 12 ETPs to be aggregated into a weighted average Tearsheet and provides a comprehensive reflection of the portfolio including overall Risk & Reward Ratings.

10 Highest Risk Ratings (Unlevered/Non-Inverse) as of 1/28/14

Ticker	Name	Focus	Region	Risk
SILJ	PureFunds ISE Junior Silver Small Cap Miners/Explorers ETF	Basic Materials	Global	9.20
TAN	Guggenheim Solar ETF	Theme	Global	9.02
GLDX	Global X Gold Explorers ETF	Basic Materials	Global	8.84
KWT	Market Vectors Solar Energy ETF	Theme	Global	8.78
RPX	Columbia RP Growth ETF	Broad Equity	North America	8.73
CVOL	C-Tracks Linked to the CVOLT Index ETN	Volatility	North America	8.69
MOM	QuantShares U.S. Market Neutral Momentum Fund ETF	Long/Short	North America	8.45
EEH	ELEMENTS Linked to the SPECTRUM Large Cap U.S. Sector Momentum Index ETN	Large Cap	North America	8.38
FLN	First Trust Latin America AlphaDEX ETF	Broad Equity	Latin America	8.36
TCHI	RBS China Trendpilot ETN	Broad Equity	Asia-Pacific	8.35

The Overall Risk Rating is aggregated and carried two decimal places to generate the ETFG Red Diamond Risk Rating.  A 1 Red Diamond Risk Rating represents the ETFs with the lowest risk ratings and a 10 Red Diamond Risk Rating represent the ETFs with the highest risk rating.  The summary page for the ETFG Risk Ratings ranks all outstanding ETPs, including levered and inverse, by both their overall risk scores as well as each underlying category. 

The search box on our site allows for a quick look-up of any ETP of interest.  Of course, you can also access the Red Diamond Risk Ratings for individual ETPs via their ETFG Tearsheet.  Lastly, for more background on the calculation method and underlying components of the overall ETFG Risk Scores, please take a look at About ETFG Risk and Reward Ratings.

Thank you for reading ETFG Daily Perspectives.

ETFG Smart Beta Indices

We continue to see growing interest in many facets of the Index business ranging from passive to smart beta indexes. Yesterday, Reuters reported both S&P as well as NASDAQ OMX intend to expand their respective index businesses this year.

As part of the Index discussion, we wanted to provide an update on our own Dynamic Indexes.  ETFG currently publishes two Dynamic Indexes, the ETFG Quant Equity 10 (Symbol: ETFGQE10) and the ETFG Quant Equity 12 – The Golden Dozen (Symbol: ETFGQE12) - let’s take a closer look at the performance and composition of the ETFG Golden Dozen - Monthly Index Report - December 2013.

Here is the most recent performance of the ETFG Golden Dozen as of year-end 2013:

Since its inception in July of 2012, the ETFG Golden Dozen has returned 38.06% vs. 31.78% for ACWI and 35.12% for SPY.  For the last 1 year period, the ETFG Golden Dozen has returned 22.25% vs. 18.60% for ACWI and 28.23% for SPY.  Finally, in the last 6 month period, the ETFG Golden Dozen has returned 16.25% vs. 13.77% for ACWI and 15.11% for SPY.

By way of background, the ETFG Golden Dozen is comprised of the top 12 equity ETFs as ranked by the ETF Global (Index Sponsor) Quant model that also meet the liquidity requirement.  The selection pool includes all U.S. listed, equity ETFs, excluding levered and inverse funds, as well as, those funds with average daily trading value of less than 5M USD.

The ETFG Quant model assigns a daily ranking to all relevant products using proprietary algorithms and employing dozens of industry metrics to gauge how likely an equity ETF will outperform the market in the foreseeable future. Selection is performed prior to trading on the third Friday of each month.  The portfolio is equally weighted and reconstitutes monthly on the second trading day following selection.

Congratulations to the ETFG Golden Dozen on its performance and for more detail, information and statistics on this Index and other ETFG Indices, please go to ETFG Indices.

ETF Liquidation Watch List

As new ETF issuance persists, we also continue to watch the parade of ETF closures - let' s take a quick look at yesterday’s release of the ETFG Monthly ETP Liquidation Watch.

On the January 2014 Liquidation Watch List there are 89 ETPs which is substantially more than the 72 ETFs that were on the December 2013 Liquidation Watch List.  Interestingly, out of the approximately 1,528 products in the ETP universe last month, there were 188 that had less than $5M in assets under management, an astounding 602 that had negative performance for the training twelve month period and 1,215 that were eligible because they were issued more than two years ago.

By way of background, the ETFG Liquidation Watch List is not meant to predict that each month’s listings are those ETPs on the brink of closing.  Rather, the list is intended to assist investors and financial professionals to simply be aware that these funds contain all three characteristics which we think would reasonably bring them under the scrutiny of their respective issuer and hopefully to the attention of any Investor or Advisor.  These three criteria are simple and very straightforward:

1. Assets Under Management – AUM of less than $5 million
2. Age – the ETP has been in existence more than 2 years
3. Performance – Negative trailing twelve month performance

Combined, these parameters identify those ETPs that have had enough time (2 years) to gather meaningful assets ($5M) in order to become profitable but have not done so and additionally have had losing performance for the last twelve month period.

Please take a closer look at this month's Liquidation Watch List to understand if there are names on it in which you may be considering taking positions. 

Thank you for reading ETFG Daily Perspectives and please be sure to see our monthly commentary on this topic at www.wealthmanagement.com

Geographic Shifts

With domestic equity markets just slightly off all-time highs, some of the prevailing questions to start 2014 seem to surround potential market corrections, timing and international exposure.

In looking at one of these questions, we have seen strong geographic rotations within our models during the last few months of 2013 and to begin 2014.  The beginning of November 2013 started with our Top 10 Ranked Equity ETFs being dominated by international funds.  Specifically, nine of the Top 10 Equity Ranked ETFs at that time were international funds of varying kinds.  As December progressed and year-end approached, our models again began to rotate and balanced these top-ranked ETFs with about half of the list being found outside the U.S.

Now as we start 2014, we again see a rotation back towards global and international ETFs with two of the Top 10 ETFG Quant ranked ETFs being North American and one of those being a domestic fund.

Here’s a quick table of the current Top 10 and their respective Geographic Region:

Ticker	Name	Region	Quant
EWY	iShares MSCI South Korea	Asia-Pacific	71.4
FXI	iShares FTSE/Xinhua China 25	Asia-Pacific	70.9
EWL	iShares MSCI Switzerland Index	Europe	70.2
FVL	First Trust Value Line 100	North America	69.7
ADRE	Powershares BLDRS EM 50 ADR	Emerging Markets	69.1
EEMA	iShares MSCI EM Asia	Asia-Pacific	68.7
SOCL	Global X Social Media	Global	68.0
IDX	Market Vectors Indonesia	Asia-Pacific	67.6
PWV	Powershares Dynamic LargeCap Value	North America	67.2
ADRA	Powershares BLDRS Asia 50 ADR	Asia-Pacific	66.4

Looking at the Top 10 is clearly a narrow sample and does not cover the broad spectrum.  Therefore, we encourage readers to examine the entire ETFG Quant Rankings as well as isolate some of the Categories, Styles and Geographic ETFs in which they may have interest.  This can be done on our ETFG Quant Movers page.

Additionally, each of the Ticker symbols above link to an ETFG Tearsheet on that ETF, so please be sure to click through and check out any of these Top 10 in which you may have interest.

Thank you for reading ETFG Daily Perspectives and have a great week.