Let’s take a trip across the grand whiskey river to our south with the iShares Latin America 40 Index Fund (ILF).  It is not an elite ranker but does find itself in Quant’s 65^th place today, its highest yet.  You may think an investment idea in the land of drug cartels and even worse politics is the last thing you needed first thing this morning but we have been noticing the fund creeping up in our models lately.   While institutional money is reportedly all going to Mexico, ILF pairs Poncho with Lefty and the 7 countries represented within are not all Spanish angels.

Mexico accounts for over 27% of AUM but they speak Portuguese in Brazil which accounts for more than 52%.  The US may not be Latin America but Southern Copper pretty much is and accounts for a little over 1% and Peru has one company accounting for less but Bermuda has 2% that is really Peruvian. Chile and Columbia combine for another 16% so all told, the words fit the picture.  ILF’s better scores recently have been driven by its high 91.1 sentiment score showing the market about as bearish as it can get.  That bearishness is understandable with a look at its poor chart which explains its 48.8 technical score that tastes like yesterday’s wine.  Its 56.2 Fundamental Score isn’t much better saying its valuation is in the middle of its range over more than a decade of trading.  All that combines for a respectable 7.44 Green Diamond Reward Rating while its 5.42 Red Diamond Risk Rating is higher than average for equity ETFs but is driven by high volatility and deviation which may appeal to the real cowboys out there.

So why do you have to choose between BRIC or MIST?  ILF gives you some of each and its 7% correction over the last three months has wound the bearish spring tightly.  Unwinding those positions will help its technicals and could have traders living in the Promiseland but long term fundamental investors may want to find a cleaner shirt.  Bringing ETF ideas to you is always on our mind and we will be back on the road again tomorrow morning with more.  In the meantime we want to wish a happy 80^th birthday to the Red Headed Stranger, Willie Nelson.

The ETF Global Quant and Green Diamond models are closely related predictive ranking systems applied to the universe of equity ETFs in existence for a year or more.  The heart of each is our Fundamental and Behavioral scoring methods that combine traditional security analysis with modern behavioral finance.  The Fundamental Scores analyze ratios of price to earnings, cash flow, book value and dividends in an historical context while the Behavioral Scores look at technical factors like momentum and relative strength over various time spans, as well as contrarian sentiment measures.  Quant includes other measures relating to global themes and quality, some of which get incorporated into the broad Red Diamond Risk Ratings which are not predictive but cover all products.  A good way to see how the models differ is in the ETFG^sm Scanner.

Risk, Reward, and Quant are default displays in Scanner but you can set many more with the Filter function; Focus gives a feel for what is ranking well in the models. Clicking twice on Quant will sort the population with today’s highest ranked SPDR S&P 500 Fund (SPY) up top.  A quick glance shows Quant’s focus continues to be US broad market funds but some sector funds also appear.  Clicking twice on Reward sorts by the highest Green Diamond Reward Ratings led by the PowerShares KBW Insurance Portfolio Fund (KBWI) as today’s 10 Green Diamond fund.  You can read about that one on Thursday’s post or take a closer look at it and any other funds by checking their Compare boxes and then the Compare button next to Filter.  We like to display fundamental and performance measures which show KBWI as cheaper than SPY and outperforming it recently.  Clicking on Quant Report shows our selections on a dedicated Quant screen for a different kind of detail. 

KBWI’s recent performance gives it a very strong 80.2 technical score but SPY does better on sentiment so each balance out to decent high 60s Behavioral Scores.  Even though insurance typically trades at a discount to the market, KBWI’s fundamentals are cheaper than usual expressed in its very high 91 Fundamental Score so they have kept pace with the strong chart.  Being all US gives SPY a better country score then KBWI’s Ireland and Bermuda exposure and size and diversification also boost SPY on those lesser weighted categories. 

Country, liquidity and diversification are factors in the Red Diamond Risk Ratings that was covered last Wednesday.  We have noticed the average of the top ranked funds creeping up with today’s top 10 at 4.63 compared to today’s all equity average of 4.78.  If you have questions on anything you see at ETF Global please ask us at support@etfg.com.

Yesterday’s Bloomberg story about central banks buying equities explains much.   Having 12% of the Swiss National Bank’s assets going into broad market ETFs would account for the dominance of US broad market funds this year, and that’s just one example in the report.  We are glad our models picked up on the trend before it was known as those are the funds that have dominated our ranks all year.  Within those ranks there are always plenty of other regions and sectors and having looked at the former Tuesday, we’ll look at the sectors today.

Energy is Quant’s favorite sector today with 9 funds in the top 100, 5 of which rank 11^th or better.  The Vanguard Energy Sector Fund (VDE) is best at 4^th place with an 8.22 Reward Rating and XLE and XOP are close behind.  There are also 9 basic materials funds in the group led by the 20^th place Market Vectors-Agribusiness Fund with the unforgettable ticker MOO.  The Global X Silver Miners Fund (SIL) does better in the Diamond model with an 8.09 Green Diamond Reward Rating.  Three PowerShares funds are among the 6 from the industrial sector with PSCI in 20^th place but PRN gets a better Reward Rating of 8.23.  Two technology funds make today’s top 10, IYW and SOXX in 9^th and 10^th, and three others make the top 100.  There are also 5 health care funds, three of which are biotech, like 44^th place PBE with an 8.16 Reward Rating.  Quant has yet to embrace the consumer sectors this year despite their good performance but we do see 3 staples funds and 2 discretionary with 37^th place IYK leading the former and 52^nd place XRT the latter, both are 7 Green Diamond funds.  Similar story with financials but yesterday’s KBWI is still in 5^th place with a 9.63 Reward Rating and XLF also makes the top 100 at 69^th place and 7.32 Green Diamonds.  The telecomm sector gets one fund in today’s top 100, Vanguard’s VOX in 67^th place which is better than Quant’s least loved sector today, the utilities with XLU  the highest ranking at 162^nd and a 6.21 Reward Rating.  Those are two tough sectors in a risk on world.

The central bank news not only confirms a source of the huge asset flows, it also confirms the validity of ETFs as a security type to gain exposure to the asset classes you need.  Financial repression from unprecedented monetary policy has rendered so many models obsolete but not ours.  ETF Global’s predictive quantitative models have been favoring US broad market funds all year but favored Europe and emerging markets at the right times last year.  We are waiting for the next turn and will keep you posted.  Thanks for reading and have a nice weekend.

We often say our models will not pick all the winners, some sectors or regions that do not score well can rally anyway.  One such sector this year has been financials but we have been glad in recent days to see the PowerShares KBW Insurance Portfolio Fund (KBWI) ranking as high as today’s 5^th place.  Glad to have a financial fund in our elite ranks and glad to see that KBW name living on after its acquisition by Stifel Financial, another good guy firm.  The fund jumped from 106^th place to 7^th last Friday and we were not sure if it was a mistake.  Three days holding the 10 Green Diamond distinction allayed that concern and it still gets an impressive 9.69 Green Diamond Reward Rating today.

Many financial funds are not scoring well in our models because despite recent outperformance, their charts still bear the bruises of the 2008 crash, as do their fundamental metrics.  KBWI’s young year and a half age unburdens it from those comparisons.  That jump last Friday is something that happens during earnings season as our models pick up and process the results, KBWI had a composite P/E over 13 before earnings season and it is less than 10 now.  Such a big drop, and the fund’s short life, drove Quant’s PE and PB scores from 45.6 to 97 in each case last Friday where they remain today.  Technical scores were already high as its mountain chart has yet to see a meaningful valley but sentiment scores are restrained by the lack of options and low trading volume.  That low volume need not be a worry as the 24 constituents you can see on its tear sheet are plenty liquid, if you need to buy a block your PowerShares representative should be able to arrange appropriate liquidity.

Although some risk measures go into the high 72.5 Quant score, the separate Red Diamond Risk model rates KBWI at 6.41, among the highest 13% of all equity ETFs.  That is driven by its 9.29 deviation and 8.54 liquidity scores, where the former has been upwardly biased.  So if you are bullish the high risk is the favorable kind but if you are bearish this may not be the fund to outperform a falling market.  That is for you to decide, we are here to support that decision and since the suits don’t give us good enough spell check let us correct yesterday’s error, the email is support@etfg.com.

Apple reports its first profit drop in a decade but the stock is up pre-market, as is the S&P 500 whose aggregate earnings are on track for their second decline in three quarters. Europe’s economies are imploding, even bringing Germany’s PMI below the crucial 50 mark but their markets are rising on hopes of ECB printing.  China’s PMI is barely above 50 as they fight the inflation being fanned by Bank of Japan Governor Kuroda scattering yen from the back of his Toyota.  Other emerging economies are slowing in the same inflation battle even as resource based economies see commodity prices plummeting.  Through it all we hear about our “low tail risk” environment, the swan is shaking her tail feathers but none appear to be black.

If 2008 makes you skeptical of Wall Street’s modern risk models, you can rest assured that ETF Global’s Red Diamond Risk Ratings do not include monetary policy in any of the 15 metrics we score each day.  They are grouped into 6 categories under the Analytics button where Volatility includes our proprietary ETFG^sm Implied Volatility score and a couple of other industry standards, while Deviation also includes common metrics weighted towards downside deviation.  Country is the score from Quant and Structure borrows other metrics from Quant regarding diversification, sponsoring firm and use of derivatives.  Liquidity is also a compilation of industry standards and includes our Liquidation Watch List while Efficiency looks at tracking error and expense ratios.

You can see the weightings of each category at the bottom of the page and can click on their column headers to sort by any of them (a feature available through most of etfg.com).  You won’t be surprised to see the highest Red Diamond Risk Ratings distributed among the leveraged and inverse population.  Bulls or bears can sort by Volatility to see which funds should expect the best ride or best place to hide.  If you want to see how a particular fund scores, sort by ticker or description or enter part of either in the search box.  Entering “gold” in the search box brings up 30 different products tracking the bullion, miners or various derivatives tracking both.

Risk has a way of making itself felt when least expected so don’t be lulled by the low tail risk models.  The ETFG^sm Red Diamond Risk Ratings are quantitative and objective where all exchange traded products are cross ranked against each other.  Whether you are concerned about the price of an ETF or its integrity, ETF Global gives you what you need to fully assess how a given product fits into your own risk tolerance guidelines.  As always, send any questions to suppoet@etfg.com.

On March 26^th we took a look at the foreign funds in Quant’s top 100 ranks and things look similar today.  There were a scant 16 funds devoted to regions other than the US last month and the same small number appear today, mostly the same names with a few exceptions.  Quant clearly continues to favor the broad US market but does have some ideas for those who need to fill their international allocation.

The iShares MSCI Australia Index Fund (EWA) topped out in mid March but has held up better than most regions and is the top ranking foreign fund today at 13^th place.  Canada’s EWC hasn’t held up as well over the last month but is in 15^th place and Spain’s EWP is in the middle both performance wise and at 14^th place.  EWP has done better over the last month than Germany’s EWG and Frances’s EWQ which rank in 36^th and 56^th respectively and better than the pan European FEZ in 35^th place today.  Switzerland’s EWL provides that rare foreign exposure that has kept pace with the US market recently and it holds 23^rd place today with a decent 78.4 Fundamental Score.  The iShares MSCI EAFE Index Fund (EFA), with more than 20% of AUM in Japan, has also been insulated from the worst of the world selloff recently.  Its tear sheet shows Europe with lesser weights but they add up to more than 27% exposure to the common currency and it holds 83^rd place this morning.  Japan has not been scoring well generally but the iShares MSCI Japan Small Cap Fund (SCJ) has a steep mountain chart and mid 60s Quant scores that get it into the top 100 at 92^nd place.  China’s FXI performed so well for us last fall and is the highest ranking Asia fund today at 18^th place followed by South Korea’s EWY in 47^th and the Developed Asia ex-Japan EPP in 52^nd.   The iShares MSCI Emerging Index Fund (EEM) was also a big winner for us last fall and is climbing the ranks again at 26^th place today.  Quant may smell a bottom in the emerging markets as a few others make the top 100 with GMF, VWO and DEM in 67^th, 68^th and 77^th place.

With only 16 foreign funds in the top 100, Quant’s US focus is about as pronounced as it has been since our inception last summer.  The model did a great job picking a wide array of international funds that provided outstanding performance in 2012 but 2013 has been a US year with the exception of Japan’s central bank fueled run which has yet to score well.  The ETFG^sm models continue to predict outperformance for the broad US market but it’s always good to look around.  Thank you for looking around at ETF Global, send any questions to support@etfg.com.

Quant begins the week with the US broad market focus that has dominated so much this year with small, mid and large cap all represented in the upper ranks.  Friday’s 1^st place Vanguard Information Technology Fund (VGT) leads again this morning and the damage in the tech sector has brought the iShares Dow Jones U.S. Technology Index Fund (IYW) up to 13^th place, lower than last Monday but higher than most of last week.  Another Vanguard sector fund, Energy (VDE), gets 3^rd place followed in 4^th by the SPDR S&P Oil & Gas Exploration & Production Fund (XOP) which has scored so well so often this year.

Looking at those four on the ETFG^sm Scanner, we can see the energy funds have lower valuations but higher Risk Ratings driven by more volatile price risk measures.  Despite their higher valuations, the tech funds score better in Quant’s Fundamental calculations that reference a fund to its own history. VGT’s excellent 98 edges out IYW’s 97 but both are about as high as can be. The energy funds also score well fundamentally but have better balance with their behavioral side.  XOP’s 71.5 Fundamental Score couldn’t be much closer to its 71.7 Behavioral Score.

The trade may be reliant on value investors coming in because the technical scores are not pretty with high 40s for all but IYW’s even worse 16.4.  XOP probably has the best short term prospects signaled by favorable sentiment measures led by a very high 94.7 implied volatility score, a proprietary calculation that our institutional clients have found to be an excellent input in their models. 

You can see some other sectors and countries represented among the US broad market funds in Quant’s upper ranks but the message remains consistent.  With few exceptions, the US market should remain the island in the storm that world markets have become.  ETF Global has identified the leading sectors and regions of the international equity markets since our inceptions last summer so whatever you decide should be your equity allocation, Quant suggests keeping that US focus that has worked so well this year.  You can find plenty of other suggestions among the upper ranks and the committed ETFG^sm team stands ready to assist at support@etfg.com.