So all it took to get investors off the sidelines and back in the game after one of the worst Januaries in market history was a little pillow talk from Mario Draghi and the ECB on Thursday about expanding their stimulus efforts to help equity markets find their footing, although the S&P 500 running into a big pocket of support between 1850 and 1880 probably didn’t hurt either. Mario might have poured the gas on the fire to help the rally get started, but it was Chairman of Aramco who lit the match when he discussed that crude oil beneath $30 a barrel was “irrational” and predicted higher prices by the end of the year. No promises were made on how we get there but that comment was all investors needed before buying energy stocks with both hands and sending the Energy Select Sector SPDR (XLE) up over 4.4% on Friday. After two positive days, talk about buying the dip is already back in vogue although we haven’t seen anyone saying this is the turning point, but what we have noticed is that despite Friday’s strong action, energy funds are nowhere to be found on our daily list of biggest quant movers. And while energy funds may have been conspicuously absent from Friday’s report, international funds were well-represented although who made the list of biggest percentage movers was a bit of a head scratcher.
Under the column heading of “not surprised at all” you’ll find hedged Japanese equity funds from WisdomTree including the WisdomTree Japan Hedged Tech, Media and Telecom Fund (DXJT) and the WisdomTree Japan Hedged Health Care Fund (DXJH) which thanks to a nineteen point improvement in its behavioral score now sits atop the ETFG Behavioral Ranking list! Promises of more government largess have a way of sparking rallies but noticeably absent from the list (but still falling into the “not surprised” column) is WisdomTree’s flagship fund in that space, the WisdomTree Japan Hedged Equity Fund (DXJ), which was nowhere to be found despite a 50% improvement in its behavioral quant score on Friday. What’s not surprising about it is that DXJ has been suffering mightily since Japanese equities and the U.S. dollar lost their mojo’s at the same time last year and it’s been a rough ride for DXJ ever since; in the last month alone the fund has seen over $768 million in outflows along with a two-third drop in its behavioral score! Strong price momentum helped lift DXJ’s behavioral score on Friday but at just a quarter of what tiny DXJH is sporting, it might still be too soon to tell if a new trend is emerging.
What does have us surprised is that investor’s enthusiasm for easy money lifted more than just international developed stocks as our list of biggest percentage changes includes a handful of Latin American funds including the iShares Latin America 40 ETF (ILF) and the iShares MSCI Chile Capped ETF (ECH) and to be honest, we’re not sure why. It’s no secret that Latin American funds have struggled over the last few years and even with Friday’s rally, ILF is off more than 60% from its peak in April of 2011 and traders trying to time the fund know it’s more difficult than jumping on a moving train thanks a standard deviation that’s almost twice as high as the S&P 500’s over the last five years. But that volatility might be exactly the reason why ILF and ECH saw a more than 70% jump in their behavioral scores on Friday as more intrepid investors hope that end of the great Fed Bull market means quick price gains for the most beaten-up international sectors.
Another possibility is that the more global macro oriented set are thinking about through the consequences of easy monetary policy and currency movements and are starting to accumulate positions in the region hoping that European and Japanese investors, lured by higher interest rates, might takeover America’s role in supplying capital to Latin America and so a quick trade becomes a more long-term play. It’s not surprising that investors have been avoiding Latin American stocks for so many years; most headlines on the region don’t stray too far from politics, corruption scandals or drug violence but much of that political instability is the direct result of the fallout from the end of the commodity supercycle and any hope for a bottoming out of asset prices might provide the catalyst investors need to get excited again. And oil wasn’t the only commodity to find its footing last week as investor enthusiasm for hard assets spilled over to other deeply oversold resources like copper and coal and sending broad natural resource funds like the WisdomTree Global Natural Resources Fund (GNAT) up over 3.5% on Friday. No doubt ILF and ECH have their fair share of commodity exposure but the real attraction of the both funds is that they can offer exposure to currencies that the dollar actually lost ground to last Friday.
Even the greatest currency traders will tell you that it’s impossible to predict every variable in the relationship between two free-floating currencies which is why it’s probably easier just to put your money behind the idea of mean reversion and focus on relationships that have reached extreme levels. The Yen and Euro both lost ground against the dollar last week but the Brazilian Real, Chilean and Mexican Pesos both made headway against Uncle Buck on Friday with it losing more than 1.3% against each currency. 1% is just a drop in the bucket against what they’ve lost with the dollar up over 46% against the Mexican Peso in the last three years, 52% versus the Chilean Peso and more than 100% against the Real. That sort of extreme outperformance might be attracting speculators who believe that even the hope of stabilization in Latin America can send their currencies skyrocketing and offer some serious returns in what could be an otherwise flat-to-down year for equities; why else would a fund like ECH, with more utilities than commodities exposure, be up almost 4% on Friday?
Thank you for reading ETF Global Perspectives!
_______________________________________________________________
Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.
ETFG ratings and rankings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. ETFG ratings and rankings should not be relied on when making any investment or other business decision. ETFG’s opinions and analyses do not address the suitability of any security. ETFG does not act as a fiduciary or an investment advisor. While ETFG has obtained information from sources they believe to be reliable, ETFG does not perform an audit or undertake any duty of due diligence or independent verification of any information it receives.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor.
Monday, January 25, 2016
Tuesday, January 19, 2016
All or Nothing
Just two weeks into the New Year and already a dismal pattern in equity markets where another Friday rout pushed nearly every sector and asset class into the red with U.S. small cap (or at least the iShares Russell 2000 Fund) and European equities slipping into bear market territory while the S&P 500 has now officially entered a correction, down 11.63% since its peak on May 20th. Perhaps even more troubling is the “all-or-nothing” nature of these Friday sell-offs with only inverse and Treasury heavy bond funds closing in positive territory as investors rush to unload any long position. Normally, we’d rely on the ETFG Quant Movers Report or our Behavioral Top 25 list to provide insight on how investors were adjusting, but even that crystal ball has turned murky with China funds sharing space with utilities and health care names.
Shifts in our ETFG Behavioral Quant scores have long been a favorite topic of our Monday morning posts for a number of reasons but largely because price momentum is one of the key contributors to the overall score and provides a glimpse into the shifting dynamics underlying the market. In business school you may have been taught that stock prices follow a “random walk” and that there’s no benefit to studying past prices. It’s probably an open secret that nearly every investment professional does just that on a daily basis and that markets aren’t nearly as “efficient” as many in academia would like to believe. College professors might be reduced to calling those generational explosions of tech stocks, of which the dot.com boom of the late 90’s was just the most recent example, just another case of “animal spirits” but that’s precisely why we so often turn to our ETFG Behavioral Scores to help shed light on how investors are reacting to market developments. Last March, the Quant movers report helped identify that bank funds were beginning to see positive momentum (and subsequently outperformance), as the chatter about a potential Fed rate hike began to increase. But when those same funds dominated our list of behavioral top scorers late last Fall, it became clear the move into bank funds was overextended.
Perhaps that’s what makes the current “schizophrenic” nature of the list so maddening as not only is there no clear trend or pattern, but the list is made of funds that seem diametrically opposed to each other. The top behavioral 25 list seems to have nearly as many China and small-cap funds as it does utility and consumer staples products while the list of weekly quant movers is dominated by European and developed market equity funds including the iShares Europe ETF (IEV), Vanguard FTSE Europe (VGK) and the Vanguard FTSE Developed Markets ETF (VEA) despite the fact that all three of these funds closed just off their weekly lows at prices not seen since 2013!
This isn’t the first time the list has become so bifurcated and one reason why is that price momentum is just part of the overall behavioral scoring process, the other part falls under the headline of “sentiment” and includes implied volatility, short interest and the put call ratio, all of which you can review in the ETFG Quant Report. It certainly isn’t price momentum that put those European oriented funds on that list as all three have composite technical scores close to their bottom decile. Instead it was their sentiment scores, typically high implied volatility or short-interest, as IEV has crossed into a bear market since its peak last May while VGK and VEA are both just outside bear market territory and it’s a similar story for the China funds such as KraneShares CSI China Internet ETF (KWEB) and the Deutsche X-trackers Harvest CSI 500 China-A Shares Small Cap ETF (ASHS). That high volatility and short interest can weigh down a fund during bad times…or lead to explosive outperformance when investors suddenly decide to embrace risk.
The other part of the list, made up of consumer staples and utility names, consists of funds whose strong price momentum can override the weak sentiment scores common to their asset class. It’s been nothing but wine and roses for the utilities sector since last December with the Utilities Select Sector SPDR (XLU) up 3.27% since December 5th versus a 10% loss for the S&P 500. In fact, if you re-ranked the Quant Report on either short or intermediate term momentum, nearly every utilities fund we score makes the top 20 although only two small funds have pushed their way into the Behavioral Top 25, the PowerShares DWA Utilities Momentum Portfolio (PUI) and the PowerShares S&P SmallCap Utilities Portfolio (PSCU). Readers only taking a quick glance at our lists might conclude that the momentum shift for utilities is still in its early stages and decide to go all in just as the sector, like the rest of the broad equity market, was hit hard on Friday with XLU down .9% while funds with a smaller-cap focus, like the Guggenheim S&P 500 Equal Weight Utilities Fund (RYU), were down substantially more on the day and closed the week in the red. In fact, XLU has the highest momentum score of any of the select sector SPDR funds but also has the lowest sentiment score thanks to its incredibly low short interest and tepid volatility which is why only small funds with a smaller average market cap weighting make the behavioral top 25 and perhaps not for much longer. PUI was down over 2.7% last Friday on heavy volume several times that experienced on a normal trade day.
So where does that leave investors, besides between a rock and a hard place? The ETFG Quant Report was designed with flexibility in mind so remember that you can manipulate the columns to find funds with low volatility and momentum scores not currently tracking new lows. Preferred stock and a number of long/short and market neutral funds meet these criteria where the more adventurous might try the opposite tack of high volatility and come away with a list of MLP and China funds that could rally if the markets stabilize or investors become more discriminating in their selling. But with a number of technical indicators like the Arms Index telling traders that equities might not be oversold just yet, staying cautious might be the smartest strategy.
Thank you for reading ETF Global Perspectives!
_______________________________________________________________
Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.
ETFG ratings and rankings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. ETFG ratings and rankings should not be relied on when making any investment or other business decision. ETFG’s opinions and analyses do not address the suitability of any security. ETFG does not act as a fiduciary or an investment advisor. While ETFG has obtained information from sources they believe to be reliable, ETFG does not perform an audit or undertake any duty of due diligence or independent verification of any information it receives.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor.
Shifts in our ETFG Behavioral Quant scores have long been a favorite topic of our Monday morning posts for a number of reasons but largely because price momentum is one of the key contributors to the overall score and provides a glimpse into the shifting dynamics underlying the market. In business school you may have been taught that stock prices follow a “random walk” and that there’s no benefit to studying past prices. It’s probably an open secret that nearly every investment professional does just that on a daily basis and that markets aren’t nearly as “efficient” as many in academia would like to believe. College professors might be reduced to calling those generational explosions of tech stocks, of which the dot.com boom of the late 90’s was just the most recent example, just another case of “animal spirits” but that’s precisely why we so often turn to our ETFG Behavioral Scores to help shed light on how investors are reacting to market developments. Last March, the Quant movers report helped identify that bank funds were beginning to see positive momentum (and subsequently outperformance), as the chatter about a potential Fed rate hike began to increase. But when those same funds dominated our list of behavioral top scorers late last Fall, it became clear the move into bank funds was overextended.
Perhaps that’s what makes the current “schizophrenic” nature of the list so maddening as not only is there no clear trend or pattern, but the list is made of funds that seem diametrically opposed to each other. The top behavioral 25 list seems to have nearly as many China and small-cap funds as it does utility and consumer staples products while the list of weekly quant movers is dominated by European and developed market equity funds including the iShares Europe ETF (IEV), Vanguard FTSE Europe (VGK) and the Vanguard FTSE Developed Markets ETF (VEA) despite the fact that all three of these funds closed just off their weekly lows at prices not seen since 2013!
This isn’t the first time the list has become so bifurcated and one reason why is that price momentum is just part of the overall behavioral scoring process, the other part falls under the headline of “sentiment” and includes implied volatility, short interest and the put call ratio, all of which you can review in the ETFG Quant Report. It certainly isn’t price momentum that put those European oriented funds on that list as all three have composite technical scores close to their bottom decile. Instead it was their sentiment scores, typically high implied volatility or short-interest, as IEV has crossed into a bear market since its peak last May while VGK and VEA are both just outside bear market territory and it’s a similar story for the China funds such as KraneShares CSI China Internet ETF (KWEB) and the Deutsche X-trackers Harvest CSI 500 China-A Shares Small Cap ETF (ASHS). That high volatility and short interest can weigh down a fund during bad times…or lead to explosive outperformance when investors suddenly decide to embrace risk.
The other part of the list, made up of consumer staples and utility names, consists of funds whose strong price momentum can override the weak sentiment scores common to their asset class. It’s been nothing but wine and roses for the utilities sector since last December with the Utilities Select Sector SPDR (XLU) up 3.27% since December 5th versus a 10% loss for the S&P 500. In fact, if you re-ranked the Quant Report on either short or intermediate term momentum, nearly every utilities fund we score makes the top 20 although only two small funds have pushed their way into the Behavioral Top 25, the PowerShares DWA Utilities Momentum Portfolio (PUI) and the PowerShares S&P SmallCap Utilities Portfolio (PSCU). Readers only taking a quick glance at our lists might conclude that the momentum shift for utilities is still in its early stages and decide to go all in just as the sector, like the rest of the broad equity market, was hit hard on Friday with XLU down .9% while funds with a smaller-cap focus, like the Guggenheim S&P 500 Equal Weight Utilities Fund (RYU), were down substantially more on the day and closed the week in the red. In fact, XLU has the highest momentum score of any of the select sector SPDR funds but also has the lowest sentiment score thanks to its incredibly low short interest and tepid volatility which is why only small funds with a smaller average market cap weighting make the behavioral top 25 and perhaps not for much longer. PUI was down over 2.7% last Friday on heavy volume several times that experienced on a normal trade day.
So where does that leave investors, besides between a rock and a hard place? The ETFG Quant Report was designed with flexibility in mind so remember that you can manipulate the columns to find funds with low volatility and momentum scores not currently tracking new lows. Preferred stock and a number of long/short and market neutral funds meet these criteria where the more adventurous might try the opposite tack of high volatility and come away with a list of MLP and China funds that could rally if the markets stabilize or investors become more discriminating in their selling. But with a number of technical indicators like the Arms Index telling traders that equities might not be oversold just yet, staying cautious might be the smartest strategy.
Thank you for reading ETF Global Perspectives!
_______________________________________________________________
Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.
ETFG ratings and rankings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. ETFG ratings and rankings should not be relied on when making any investment or other business decision. ETFG’s opinions and analyses do not address the suitability of any security. ETFG does not act as a fiduciary or an investment advisor. While ETFG has obtained information from sources they believe to be reliable, ETFG does not perform an audit or undertake any duty of due diligence or independent verification of any information it receives.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor.
Tuesday, January 12, 2016
One Month Left to enroll in The Spring 2016 ETF Global Portfolio Challenge
Enrollment for the Spring 2016 ETF Global Portfolio
Challenge closes on Friday, February 12th !
Several new features have been implemented to the
challenge - weekly re-balance opportunities, transaction costs and a streamlined
registration process are just a few of the additions that will serve to
strengthen the user experience.
The Spring 2016 ETF Global Portfolio Challenge has
already drawn thousands of students from all over the world and a wide range of
academic institutions. In what was a deeply competitive Fall Challenge, the competitive landscape is
poised to intensify for the Spring 2016 contest as students from across the
globe participate!
We welcome all undergraduate and graduate students to participate in the challenge. For a more detailed description of the challenge and to sign up today, please visit the contest website at www.etfportfoliochallenge.com
We welcome all undergraduate and graduate students to participate in the challenge. For a more detailed description of the challenge and to sign up today, please visit the contest website at www.etfportfoliochallenge.com
Monday, January 11, 2016
Strong Stomachs Required
Global equity markets started the new year with their own
fireworks show although the overall effect felt like less “bang” and more
“KABOOM” as the S&P 500 recorded its worst opening week as credit markets begin
to move away from the zero bound. Most
eyes were locked on the debacle in Shanghai and even as Chinese stocks closed
the day in positive territory, U.S. equities opened in the green only to close
deeply in the red and close to the lows of the day as renewed stability in
China wasn’t enough to avert profit taking here at home. With over $2.5 billion yanked from the SPDR
S&P 500 ETF last week, it’s not surprising that our ETFG Quant Movers List
has a distinctly defensive flavor but even amid the profit taking on Friday a
small trend emerged that could signal that 2016 won’t be so cut and dried.
The first four trading days of the year had a distinct
“baby and the bathwater” vibe going as investors rushed to clear their portfolios
of anything that was positive in 2015 and run back to their old defensive
favorites like the gold miners and utility funds. The permabears and gold bugs are probably
still doing a victory lap after the strong outperformance by a number of gold
funds last week including the Market Vectors Gold Miners Fund (GDX) which was
up 5.83% while SPY languished with a 5.86% loss. And while that certainly wasn’t the biggest
point spread the two funds have ever recorded, it seemed to lend credence to
the notion that the miners have returned to their old role as a place of
“safety” when the broader equity market is suffering and to the steady
accumulation gold mining funds have seen since the first bout of equity
turbulence last summer.
Bigger (in terms of average market capitalization) was
definitely better at least performance wise, but a number of investors were
clearly trying to get ahead of a trend by going small with the microcap Global
X Gold Explorers Fund (GLDX) seeing it’s behavioral score rise over 43% last
week on strong price momentum. Utility
funds have benefited from the same trend although not to the same degree as
investors have been hesitant to overly commit to an already richly priced and
interest rate sensitive sector. The
Vanguard Utilities VIPERS Fund (VPU) had the strongest increase in its weekly
behavioral score with an almost 44% gain although ranking our coverage universe
based just on momentum would pretty much just show every utility fund we
currently track.
Friday might have been scary from the technicians’
point-of-view as equity indices were unable to hold their gains and closed near
their lows, tensions cooled enough to allow a handful of individual names to
outperform on the day and keep it from being a slam dunk for defensive
equities. GDX lost over 2.4% on the day
as December’s strong Employment Report signaled that the Fed could potentially
be on track to raise rates again in early spring which would raise the
opportunity cost of holding the miners.
Utility funds also suffered minor losses on the day as their recent
outperformance against the broader equity markets has reached almost extreme
levels and has investors seeking out more attractive price-to-yield
opportunities elsewhere, most noticeably among MLP funds that were hard hit by
profit taking earlier in the week. MLP
funds had a strong run-up in late December and a good chunk of those gains were
given back in the first four days this week but a number of funds recovered
some lost ground on Friday including the JP Morgan Alerian MLP ETN (AMJ) with a
1.17% gain. In fact, if you used the
Quant Report to re-rank our coverage universe based on short or intermediate term
momentum, AMJ would make the list of top 50 funds based on its recent price
action while even broader energy sector funds like the SPDR Select Sector
Energy SPDR (XLE) makes the top 100 as its price performance becomes “less bad”
relative to the broader markets.
For those who can look beyond the doom and gloom and with
the S&P 500 just crossing into oversold territory, there’s always the
possibility that any calm overseas could help spark at least a short-term rally
here at home and what could lead the way higher then? You could use the ETFG Quant Report to find
funds with high implied volatility and low but improving momentum (which would
mostly get you more MLP funds) or you can use the Grey Market report to back into
funds offering high exposure to names that could see the most bound from a
“world’s not ending today” rally. A
handful of stocks found strength on Friday including Apple (AAPL) after
dominating much of the headlines earlier in the week when the stock broke below
$100 on heavy distribution. Leaving
issues of iPhone sales aside, a technician would tell you that distribution has
pushed the stock into deeply oversold territory and given its size and
popularity, could make it a candidate for a near term bounce. Our Grey Market report identified the iShares
Technology ETF (IYW) as having the single largest percentage allocation to AAPL
in our coverage universe at 16.5% and it definitely shows in the funds
behavioral rankings. Even with a healthy
dose of the FANGs, IYW’s short and intermediate term technical scores rank in
the lowest decile while short interest and implied volatility remain relatively
high. With the fund approaching the
levels where it found support last August and for those with strong stomachs, it
might be worth putting the fund on your watchlist if equities begin to find support
over the next few weeks.
Thank you for reading ETF Global Perspectives!
_______________________________________________________________
Assumptions,
opinions and estimates constitute our judgment as of the date of this material
and are subject to change without notice.
ETF Global LLC (“ETFG”) and its affiliates and any third-party
providers, as well as their directors, officers, shareholders, employees or
agents (collectively ETFG Parties) do not guarantee the accuracy, completeness,
adequacy or timeliness of any information, including ratings and rankings and
are not responsible for errors and omissions or for the results obtained from
the use of such information and ETFG Parties shall have no liability for any
errors, omissions, or interruptions therein, regardless of the cause, or for
the results obtained from the use of such information. ETFG PARTIES DISCLAIM
ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY
WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE. In no event shall ETFG Parties
be liable to any party for any direct, indirect, incidental, exemplary,
compensatory, punitive, special or consequential damages, costs, expenses,
legal fees, or losses (including, without limitation, lost income or lost
profits and opportunity costs) in connection with any use of the information
contained in this document even if advised of the possibility of such damages.
ETFG
ratings and rankings are statements of opinion as of the date they are
expressed and not statements of fact or recommendations to purchase, hold, or
sell any securities or to make any investment decisions. ETFG ratings and
rankings should not be relied on when making any investment or other business
decision. ETFG’s opinions and analyses
do not address the suitability of any security.
ETFG does not act as a fiduciary or an investment advisor. While ETFG has obtained information from
sources they believe to be reliable, ETFG does not perform an audit or
undertake any duty of due diligence or independent verification of any
information it receives.
This
material is not intended as an offer or solicitation for the purchase or sale
of any security or other financial instrument. Securities, financial
instruments or strategies mentioned herein may not be suitable for all
investors. Any opinions expressed herein
are given in good faith, are subject to change without notice, and are only
correct as of the stated date of their issue.
Prices, values, or income from any securities or investments mentioned
in this report may fall against the interests of the investor and the investor
may get back less than the amount invested.
Where an investment is described as being likely to yield income, please
note that the amount of income that the investor will receive from such an
investment may fluctuate. Where an
investment or security is denominated in a different currency to the investor's
currency of reference, changes in rates of exchange may have an adverse effect
on the value, price or income of or from that investment to the investor.
Monday, January 4, 2016
Pulling the FANGs
2015 is going to be remembered largely as the year of the
“FANGs” but for money managers running strategic allocation strategies, it was
a true “Annus Horribilis” where it seemed that no matter which way you twisted
and turned, literally nothing worked. Amazon
and Google may have helped large growth funds stay in the black but only
dividends kept their large blend brethren from ending the year in the red like
the rest of the style boxes. Investors
who turned to international equities had to play a smart game of picking the
right market and currencies as Ireland and Denmark outperformed even hedged
European equities. And while forecasts
of more doom and gloom seem to be the order of the day, the ETFG Quant Movers
report seems to suggest that investors and their Advisors are continuing to
shift to smart beta and defensive favorites hoping to get the best of both
worlds in 2016.
Many familiar names keep turning up in our weekly
behavioral quant score reports. This
week was no exception with the PowerShares S&P 500 Low Volatility Portfolio
(SPLV), which saw its behavioral score surge over 30% last week thanks to
strong price momentum that put the fund into the 10 highest rankings funds while
its closest rival, the iShares MSCI USA Minimum Volatility fund (USMV)
languished 300 spots further down the list.
It’s not hard to see why the fund has surged to the top of the list after
it handily outperformed the S&P 500 TR by close to 300 bps last year while
suffering only a fraction of the downside in August’s rout. That alone makes the fund an easy choice for
shell-shocked Advisors with clients who still want all the imagined upside with
none of the potential downside and which would also explain the $550 million in
positive inflows the fund recorded in December.
But why are they going to give all their love to SPLV
while USM, which performed even better last year, is being treated like the ugly
stepsister? USMV and SPLV may have
similar names but very different portfolios with SPLV having a value oriented
approach compared to USMV’s more giant-cap allocation that leans more towards
growth thanks to a heavy weighting to tech and healthcare names that gave it
some extra “umph” in 2015. In fact USMV,
which is reconstituted twice a year, currently has two of the four FANGS while
SPLV not only is missing all four but currently has a 0% weighting to
highflying tech and lowly energy stocks.
Instead the fund has a heavy allocation to consumer staples names
including Clorox and industrial favorites like Waste Management that
historically have done better in bear markets thanks to steady dividends and
more consistent earnings growth and SPLV isn’t the only fund to benefit from
this trend.
Two other funds with heavy consumer staples allocations made
our list of top behavioral movers last week include the Vanguard Dividend
Appreciation ETF (VIG) and the Schwab U.S. Dividend Equity ETF (SCHD.) That positioning appeals to investors looking
to get away from the 21st centuries answer to the Nifty Fifty but
before you rush out to add SPLV to your portfolio; remember that kind of
success tends to create its own problems and for SPLV it’s one of valuations as
the fund currently has the lowest fundamental score of any product currently
tracked by ETF Global thanks to price multiples scores close to record highs.
Investing on fundamentals is a tough game and better
suited to investors with a more long-term orientation and even then it might
require a cast iron stomach to hit that buy button although our Fundamental
Score movers report shows a few brave souls have been diving in the bargain bin. The bottom of the value heap continues to be
dominated by high yield MLP and other energy funds but international funds that
were badly stung in 2015 by the rising dollar are slowing beginning to climb
their way out of the deep value hole as investor’s debate how much more upside
potential the dollar might have in 2016.
No clear or consistent pattern was readily transparent last week
although there seemed to be a clear preference among investors for Asian
equities with little to no Japanese exposure like the iShares Asia/Pacific
Dividend ETF (DVYA), the WisdomTree Asia Pacific ex-Japan Fund (AXJL) and the WisdomTree
Emerging Markets SmallCap Dividend Fund (DGS) making the short list for biggest
absolute drop. Switching to the largest
percentage drop brings up an entirely different list of products although the
international flavor continues to predominate led by the SPDR S&P International
Consumer Staples Sector ETF (IPS) that seems to combine the best of both worlds
with inverse dollar and consumer staples exposure although being a somewhat
thinly traded fund might limit its usefulness as an indicator. Investors looking for a double whammy should
remain cautious of IPS for other reasons however as it ranks just behind SPLV
with the second lowest fundamental score of any fund currently tracked by ETF
Global!
Thank you for reading ETF Global Perspectives!
_______________________________________________________________
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