One of the drivers of the bull market has been stock buybacks where companies can offset mediocre earnings growth with ample cash or cheap debt to produce strong earnings per share growth.  Sometimes overall earnings are so strong that there are limited other opportunities to reinvest the profits.  Whatever the reason, a US company that has repurchased at least 5% of its outstanding shares for the trailing 12 months is eligible for inclusion in the Powershares Buyback Achievers Fund (PKW), today’s top Quant ranker and sole 10 Green Diamond fund.

It has held that unparalleled Reward Rating for 5 straight days and a look at its chart explains why.   Like PIQ, its sister smart beta fund that we wrote about on March 18, it has left the S&P 500 in its dust this year making it quite an achiever in its own right.  It has done that while garnering less than 3 Red Risk Diamonds, which unlike their Green counterparts are reflective of a product’s composition and history not predictive of future returns.  The 2.96 Red Diamond Risk Rating says that PKW is less risky than 70% of all 1469 exchange traded products, and its 10 Green Diamond Reward Rating says it has the single best prospects for the next few months of all the 742 equity ETFs in our rankings, based on last night’s close.  That Reward Rating reflects the 209 constituents within the fund which is the one aspect you need to know about because they are about to change.  The quarterly reconstitution that occurred in January has performed terrifically but a new one will come in April.  So PDF its tear sheet with the button in the upper right and do it again in a few weeks to see how they differ.

Whether you should buy it now or wait for the next portfolio is up to you, the model driving the fund’s index has proven adept throughout its quarterly reconstitutions as seen in PKW’s strong intermediate and long term technical scores.  Its Fundamental Score will change with the new portfolio which will affect its Green Diamond Reward Rating.  We will keep an eye on it and let you know so you can keep your eyes on it too.  Closing out a remarkable quarter for the US stock market we wish you all a Happy Passover and Happy Easter!

The broad US theme has become even more pronounced than we have seen all year. On Valentine’s Day we wrote about the three S&P 500 ETFs (SPY, IVV, and VOO) ranking in the top 15, today they are all in the top 10 joined by the Growth and Value versions of that index (IVW and IVE) in 2^nd and 9^th place.  Two broad Russell funds also make today’s’ top 10, the total market 3000 (IWV) ranks 3^rd and the large cap 1000 (IWB) finds itself tied at 9^th place followed closely by the small cap 2000 (IWM) in 12^th.  One result of this broad US concentration is the average Red Diamond Risk Rating of the top 10 has come back down below 4.

We were surprised to see the 2 bigger S&P 500 funds scoring above 4 Red Diamonds, the younger VOO gets a lower Risk Rating which will make more sense after reading that Valentine’s Day post.  The 7^th place iShares S&P 500 Index Fund (IVV) with 4.29 Red Diamonds and the 9^th place iShares Russell 1000 ETF (IWB) with 3.85 have similar inception dates in May 2000 so we wanted to compare the full Risk Ratings on each.  They are pretty close on the integrity measures with IVV scoring better with slightly lower scores in Structure, Liquidity and Efficiency.  With Risk, lower is better.  The country scores are even closer as both are entirely US focused so the tiny difference can be attributed to rounding.  It is the Volatility and Deviation scores that differentiate between upside and downside volatility and deviation separating the two.  Plotting both funds on the same price chart exposes little daylight from time to time but IWB wins out slightly which effects those measures and accounts for the Russell 1000’s lower overall Risk Rating.

Our Quant and Reward models predict relative performance not market direction and we have speculated that the low average Risk Ratings of the top rankers could be a cautionary signal.  So far it hasn’t meant that but the selections in the broad US market have kept you out of all the troubles overseas and the models say the US will continue to outperform.  Only time will tell if that outperformance comes on the upside or the downside.  Thank you for spending your time at ETF Global, we’ll be back tomorrow to close out the shortened week. 

A week ago we took a bird’s eye view of the sectors represented in the top 100 ranked equity ETFs, today we’ll look at the regions.  Quant continues to favor the broad US market with only 16 funds devoted to other regions making today’s top 100.  So let’s begin with our neighbors to the great white north.

The iShares MSCI Canada Index Fund (EWC) got into the top 10 for the first time this year on March 15^th which happened to be the monthly selection day for our Dynamic indices.  It has managed to maintain 6^th place today.  It’s the only non US fund in the ETFGQE10 but the Golden Dozen also has a couple of European funds this month. The SPDR DJ Euro STOXX 50 Fund (FEZ) and the iShares MSCI France Index Fund (EWQ) were both among the top 12 funds that met the Golden Dozen’s liquidity requirements on March 15^th and rank at a respectable 22^nd and 30^th place today, we obviously have high hopes for them at least for the next month.  If you are tempted to pick up some exposure in Europe, Quant likes these and a few others.   Germany (EWG), Sweden (EWD), Switzerland (EWL) and Spain (EWP) see their iShares MSCI Index funds in 40^th, 45^th, 56^th, and 57^th place which aren’t great but do signal outperformance over the next few months.  If you want to keep it broad, the iShares MSCI EAFE Index Fund (EFA) is in 74^th place but struggling to stay in the top 100 lately.  Moving to Asia, the iShares MSCI South Korea Index Fund (EWY) is at 18^th place, its highest rank all year as Quant suggests its correction may be done.  The two China funds that performed so well for us last year are showing up again.  FXI and GXC have come down to their 200 day moving averages and up to 64^th and 66^th place.  It may not be Asia but it is Pacific and the iShares MSCI Australia Index Fund (EWA) ranks at 30^th today, off from its recent higher ranks.  Some Asia-Pacific funds make the list that are notable for excluding one of Asia’s hottest stock markets. The iShares MSCI All Country Asia ex Japan Index Fund (AAXJ) barely makes the cut at 99^th place but their Pacific Ex-Japan Index Fund (EPP) does better at 45^th.  Emerging markets funds have not been scoring well this year but two make today’s top 100. The SPDR S&P Emerging Asia Pacific (GMF) is at 79^th place but the iShares MSCI Emerging Index Fund (EEM) which did so well for us last fall ranks better at 61^st.

So if you must invest outside of the US there are some ideas but Quant is still clearly saying the broad US market is poised to continue its outperformance.  It has been the right call all year but will bring our performance versus the S&P 500 down again when we compile our monthly performance reports next week.  With all three funds tracking that index in the top 25 and similarly broad US funds also ranking highly, we are just happy to be steering you to the best performers in the world of ETFs. 

Lady Luck wasn’t very ladylike to our brackets this weekend but we don’t rely on luck for things more important than college basketball.  We seek out the best tools and comprehensive analysis of the important matters at hand.  When it comes to ETFs, our models have proven to be excellent selection tools for our clients’ equity allocations.  However, beyond Quant and our Green Diamond Reward Ratings, ETFG^sm offers myriad tools to help you decide on other allocations too.  Our indices on the home page provide a deep yet quick and concise view of the world of exchange traded products.

Beginning with the ETFG Global 500 Index, you can see how the world of exchange traded products has performed day to day or year to date.  This capitalization weighted market performance benchmark was designed for managers who take advantage of ETFs to allocate their portfolios across asset classes and regions.  Reflecting the performance of the 500 largest exchange traded products, excluding leveraged and inverse, it is published under the Bloomberg ticker ETFG500 and we let managers benchmark against it free of charge, please contact us if you are interested.  Except for Dynamic, the other indices are calculated in house and provide a quick look at how those asset classes, regions and sectors are performing.  If one looks lucky to you, click on it to see its constituents and click on any of them to see their tear sheets.  Maybe an underperforming index strikes you as a place to capture value or maybe you want to get ideas from what’s hot.  We don’t tell you what to do we just make it easier to decide.  The first three tabs contain simple market performance benchmarks but the Dynamic tab shows our published smart beta indices that we have written about, most extensively on February 27.

If you think Lady Luck is eyeing any of those indices you can also take a closer look with our powerful Scanner. Begin by choosing which of the dozens of metrics you want displayed on the output and then select the appropriate Category, Focus, Region or any numeric filters or other screens.  Your clients expect you to use the best tools available to manage their portfolios and none have proven better than the ones ETFG^sm brings to you every day.  Thanks for reading and good luck this week.

We’ve noticed much commentary lately about Dr. Copper, the commodity said to have a PhD in economics for its power of predicting economic growth.  Although empirically questionable, the breakdown in the commodity’s price has cast aspersions on the basic materials sector which has lagged the S&P 500 this year.  Plotting copper against the stock market year to date looks like a set of alligator jaws about to chomp.  We mention this because a couple of basic materials funds have been quietly climbing the ranks.

The 14^th place SPDR Materials Select Sector Fund (XLB) with 9 Green Reward Diamonds looks a little better than the 37^th place iShares Dow Jones U.S. Basic Materials Index Fund (IYM) with 8, but a deeper look at each on the ETFG^sm Scanner will help you make your own assessment.  Beginning with the Filter function, we like to display the fundamental data available on the Display Fields dialog along with our Ratings, Quant Score and the compare function.  Selecting Basic Materials under Focus will narrow the list which we can display alphabetically by sorting the Ticker column header.  Checking the compare box for IYM and XLB and clicking Compare up top will put the two alone on your screen.  You will see that XLB is more expensive on most measures but gets better scores.  One reason is its longer lifespan includes more data points to compare against, in this case some late 1990’s high valuations.  If you also chose to display performance, you will see that XLB has outperformed IYM lately but that’s not the reason for its extra Green Diamond. Clicking Quant Report up top will show the two funds alone on our Quant screen where you will see IYM has a higher Fundamental Score which is half of the Green Diamond Reward Rating and both have identical 56.0 technical scores today. The final fourth of the Reward Rating is the sentiment score which favors XLB by 9 points, pushing it over the 9 Diamond threshold.  All that may be more granular than you need in which case clicking on either fund will bring up its tear sheet showing their minor differences in living color.

If those alligator jaws chomp down on Dr. Copper and the market, you can expect these funds to outperform which our models are suggesting could happen.  Since quantitative models are free of personal bias, that doesn't mean we think the Florida Gators are going to help Obama’s brackets as our hearts are with the riding high Jesuits at G’Town.  We’ll see what our models and our brackets look like on Monday, have a good weekend.

We have written extensively about the average Red Diamond Risk Rating of the top 10 funds recently coming in below 4.  That number is now at a still low 4.2 as growth and small cap funds comprise more of today’s elite ranks.  The lowest Risk Rating among the top 10 is 3.19 and belongs to the Powershares Buyback Achievers Fund (PKW).  You can read more about the fund in our March 6^th post but today we will use it to explain how our Risk Ratings are compiled.  Under the Analytics button the first selection is the ETFG^sm Red Diamond Risk Rating page listing our various risk scores for all exchange traded products.

You will notice the highest Risk Ratings skew towards the leveraged and inverse products but we can focus on PKW by entering its ticker in the search box above the sortable headers.  Now we see its 3.19 Risk Rating highlighted in Red with its six sub categories to the right (their weightings are at the bottom).  Each of these sub scores is a proprietary compilation of various industry standard metrics.  PKW’s 3.3 Volatility score includes our ETFG^sm Implied Volatility measure in addition to other metrics to help differentiate good and bad volatility because we don’t want to penalize good performance. Similar thoughts drive our Deviation score which also includes various industry metrics. Country risk comes out of our Quant model and is an example of how our Diamond Ratings differentiate metrics that Quant integrates.  Structure is another of those Quality metrics from Quant that become part of the Red Diamond Risk calculation.  It looks at the diversification and average weights within a fund, its use of derivatives and its sponsoring firm.  Liquidity also borrows from Quant where we look at bid/ask spreads and average volume but we add a measure for inclusion on the ETFG^sm Liquidation Watch List which warns of the ultimate liquidity event.  Finally, our Efficiency score addresses tracking error and expense ratios.

Investors not only consider the return an ETF may provide but also the risk they undertake in holding it.  Our Green Diamond Reward Ratings have done an excellent job predicting those funds that have performed best but our Red Diamond Risk Ratings are merely reflective of a given product’s historical attributes.  They are compiled and change daily although they tend to be more durable than the Reward Ratings which change with the market’s winds.  If you think the market has more to run you might want to look for higher volatility products which is a reason why we break out the sub scores.  ETFG^sm doesn't tell you what to do, we give you easy to use tools to make better decisions for yourself.

Two foreign funds have broken the US hold on the top 10 this morning, no not Cyprus and Russia.  These two share our language and they both have welcomed stronger currencies.  Would you rather invest in a country with a weakening or a strengthening currency?  They said the sun never sets on the British Empire and when it’s daytime in Canada it’s night in Australia. The iShares MSCI Canada Index Fund (EWC) holds Quant’s 3^rd place rank this morning and their Australia Index Fund (EWA) comes in at 10^th place.

EWA had been keeping pace with our broad market year to date but a 3% correction this week has dinged its technical score but brought out enough bears to boost its sentiment score.  Combined with a decent 70.3 Fundamental Score leads to today’s 9.72 Green Diamond Reward Rating.  EWC on the other hand has lagged this year which explains its middling Behavioral Score of 67.8 but the market may be missing a gem as it sports a very nice 81.5 Fundamental Score.  Those numbers combine to give EWC and even better 9.88 Green Diamond Reward Rating.  Strong currencies are good for a nation’s financial sector which accounts for almost half of AUM in EWA and more than 35% of EWC.  Materials are EWA’s second largest sector with almost 20% and Energy makes up another 25% of EWC. Besides their strong Reward Ratings, both funds also carry low Red Diamond Risk Ratings of 3.63 for EWA and an even better 3.2 for EWC.

If you are looking for a sugar fueled short term trade you may want to stick with the weakening currencies.  But if you are looking to invest internationally for any meaningful period of time you will have to transfer those foreign currencies back into US dollars eventually.  The Aussie and Loonie have proven to be attractive places for such an investment and our models find other attractive aspects to these funds today.   Both ranked and performed well last fall but EWC began to falter late last year when it fell out of Quant’s top 100 on Christmas Eve. Its performance has had a time out but the fund began to score better early this month so our models suggest it’s ready to join the party again.  Thank you for joining the party here at ETF Global, happy spring!