Anyone want to get back on that gold bandwagon?  As fear is gripping world markets, those gold mining sisters are getting sweet kisses, each jumping more than 5% yesterday with a long way to still recover their recent declines.   Their return to Quant’s top 10 is indicative of subtle changes in the rankings recently.  We covered the countries in Quant’s top 100 Wednesday and today we will cover the 35 sector funds among that group.

Energy is no longer the clear favorite but still has XOP and IEO in 2^nd and 6^th place with 5 other funds bringing the sector’s average Quant score within the top 100 to 67.39.  Technology has 8 funds in the top 100 led by IYW and VGT tied for 7^th place.  The sector has 1 more fund and a higher average Green Diamond Reward rating but lower average Quant Score of 66.6.  When we did a similar sector look on April 26^th we saw 9 basic materials funds but only 5 today.  However the aforementioned mining sisters, GDX and GDXJ have moved up to 3^rd and 4^th place closely followed by industrial metal fund XME in 5^th place.  Two other mining funds give the sector the best average rank of 24, best average Quant Score of 69.2 and best average Reward Rating of 8.83, among the top 100.  So it looks like the mining sub sector of basic materials is Quant’s favorite today.

There are 5 industrial funds on our list but only PRN makes the top 25 at 18^th place.  The consumer staples sector has 3 funds led by VDC also making the top 25 at 23^rd place which is slightly better than health care with 3 funds but the highest ranking is IHI at 44^th.  Telecomm only has 1 fund in the top 100 but IYZ is in 10^th place scoring 69.2.  Offering something for everyone today, the remaining three sectors are also represented with XLF as the best financial fund in 59^th place and utilities at 95^th with VPU.  Consumer staples also has 1 fund but it is Chinese based CHIQ ranked 87^th today.

Quant’s top 100 ranked funds have an excellent record of outperforming the S&P 500 and all ten sectors represented in that group today signals a transitioning market; precious metals funds scoring so well suggests fear is playing a role in the transition.  The economy can probably handle long term rates above 2% but can all the leveraged bond managers? Maybe it’s Japan’s inability to bring rates down despite massive liquidity or maybe it’s the Mets sweeping the Yankees – something feels amiss.  Fortunately Quant doesn’t have feelings, just proven objective analysis so check in each day to see what the ETFG^sm models have to say.  Thanks for reading and stay cool this weekend.

We have noticed gold back in the news reading about renewed central bank purchases at the same time as record COMEX short positions.  The popular SPDR Gold Shares Fund (GLD) has experienced huge outflows in our new low tail risk world and is down about as much as stocks are up this year.  Performing even worse is our old darling Market Vectors Gold Miners Fund (GDX) down almost 40% in 2013 and worse than that is her little sister Market Vectors Junior Gold Miners Fund (GDXJ).  Our predictive reward models do not evaluate commodity funds like GLD but Quant ranks the latter two at 4^th and 7^th place today.  GDX was the single worst call our models have made so we will forgive your skepticism but feel compelled to report the new rankings.

We say new rankings because GDX fell out of the top 100 in early April, only days after its last of many 10 Green Diamond days, and GDXJ has never seen the top 10 until today.  Both funds experienced high volume selloffs culminating on April 17^th but traded lower until their most recent bottoms on May 17^th.  Since that date however both are outperforming the stock market.  A week and a half does not make a trend but both funds enjoyed big jumps in their technical scores overnight from the single digits to above 47 for each. Sentiment has been bearish with the more liquid GDX scoring above 80 but little sister GDXJ is also elevated at 73.9.  If you sort our Quant page by Fundamental Scores you will see each of them in the top 10 scoring above 80.  GDX ranks higher and gets a better Green Diamond Reward Rating of 9.13 to GDXJ’s 8.73 and it also has lower risk at 5.4 compared to 6.57, each represents significantly higher risk than the average equity ETF as does GLD’s 5.51 Risk Rating.

With Japan’s Nikkei sustaining another multi handle move down overnight maybe the low tail risk premise is misplaced.  Often called a fear gauge, gold has been a good diversifier for those looking for non-correlated assets in our exuberant markets and we noticed something else.  Looking at a chart of 2008’s crash we see that gold broke down prior to equities in the spring and summer and held up better when the meteor hit in the fall.  If you have full faith in Bernanke and Kuroda disregard this as another of Quant’s rare errors but if risk is on your radar this may be an opportune time to put on one of the all time classic hedges.

We have been mentioning more foreign funds lately and we see 24 of them in Quant’s top 100 ranked funds today, up from 16 when we took a similar look on April 23^rd and the highest we have seen this year.  That still leaves 79 US based funds (since there is a four way tie for 100^th place) representing the model’s continued affection for the US market.  The international funds run the gamut of development class and risk level providing something for everyone looking for international exposure.

The broadest exposure of the bunch is found in the 46^th place iShares MSCI EAFE Index Fund (EFA) with pie charts using all the colors of the rainbow but more than 40% of AUM split between Japan and Great Britain.  Sticking with the more developed regions we see Canada’s EWC and Australia’s EWA in 5^th and 13^th place and the mostly Canadian but higher risk gold miners in GDX at 74^th place.  Developed Europe has the broad FEZ in 30^th place behind Switzerland’s EWL and Spain’s EWP in 7^th and 11^th.  France, Germany and Sweden also appear with EWQ, EWG and EWD ranked 16^th, 21^st and 28^th. 

Moving to Asia we see the broad EPP and AAXJ at 8^th and 91^st place and both are noticeable for excluding the Japanese market.  Japan does have the small cap SCJ quietly climbing the ranks up to 25^th place today (Friday’s DFJ has fallen out of the top 100).  China gets two funds in the group with PGJ and FXI in 37^th and 51^st place.  IShares also sees their 4 funds tracking Malaysia (EWM), Indonesia (EIDO) South Korea (EWY) and Taiwan (EWT) spelling MIST a different way with all four in the bottom half of the top 100.  That brings us to the 5 emerging markets funds which is reminiscent of last fall.  20^th place EEM was a great performer then and is joined in the top 100 today by GMF at 23^rd, VWO at 74^th, ADRE at 85^th and GMM in 89^th place.

All of those get 7 Green Diamonds or better and range in Risk Ratings between Switzerland’s EWL on the low risk side with 2.1, akin to a short term bond fund, up to GMM’s high Risk Rating of 6.21 which is typical of the more esoteric equity ETFs.  Quant’s top 100 ranked funds have an excellent record of outperformance so click on any of their tickers to see their tear sheets and full ratings and constituent information.  If you haven’t signed up for ETF Global^sm yet, click the link in the welcome message on the home screen for a free trial and please send any questions to us at support@etfg.com.  Thanks for reading and have a good day.

Energy prices are in a multiyear downtrend yet 4 energy ETFs are among today’s top 10, keeping it as Quant’s favorite sector.  The front page of today’s Wall Street Journal provides a hint why with its story about US energy production causing rifts in the OPEC cartel.   The Vanguard Energy Sector Fund (VDE) and the SPDR Energy Select Sector Fund (XLE) in 7^th and 8^th place have similar constituents dominated by the integrated oil and gas producers and more than a third of AUM held in the oil and gas exploration and production sector that makes up the 1^st place SPDR S&P Oil & Gas Exploration & Production Fund (XOP) and 6^th place iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (IEO).  All are benefiting from the renaissance in US energy production.

The story says US fracking is a profitable way to extract oil as long as prices remain above $70 per barrel which is far below current prices.  All 4 funds have solid charts this year and technical scores around 70 but wider spreads on their sentiment scores.  The SPDR products have higher put/call and short interest scores while the two E&P funds have higher volatility scores which leads to XOP’s 1^st place rank.  Fundamentally the spreads are closer where VDE gets the highest score at 65.3 which is not too far above XLE’s low at 58.2.  The most noticeable differentiator is the weightings of each funds’ constituents.  The broader XLE and VDE see the same top 5 holdings accounting for almost half of AUM.  On the E&P side, we also see similar constituents but IEO’s top 5 account for about 40% of AUM while XOP’s equally weighted strategy sees its top 5 holdings accounting for less than 9%.

Maybe it’s the Memorial Day blizzard in the northeast or the race fans wearing jackets at this year’s Indy 500.  We often see energy stocks do well on cold winter days and will see how they do on cold summer days.  Whatever the reason, energy funds have done well this year despite the downtrend in their commodity prices.  With all four funds getting 8 Green Reward Diamonds, the ETFG^sm models say that solid performance is going to continue.  If risk is on your mind you might want to stick with XLE and its 3.71 Red Diamond Risk Rating, low among the group that sees higher than average risk generally.  We are pleased to see the sheiks and tyrants of OPEC cope with a diminished role over our economy and we are also pleased to congratulate Tony Kanaan on winning the Indy 500.

Meeting you in the mornings here throughout 2013 we have been reporting Quant’s consistent focus on US broad market funds which have spent the year knockin' on heaven's door.  Our words may have sounded like an idiot wind at times because the ETFG^sm models did not recognize the huge run in the Japanese market which scored well fundamentally but not technically.  Those fundamentals have come down, and not only because the prices were going up, even though the strong charts have not boosted the technical scores as much as you might expect.  The short term charts look good but long term charts still reflect the rollin and tumblin Nikkei index over the prior two decades.  Today we have a Japanese fund finally making the top 10 as the WisdomTree Japan SmallCap Fund (DFJ) jumped 52 positions overnight into 7^th place this morning.

If 7^th place looks lucky, its alright 66.6 Fundamental Score may raise fears that this is a Jokerman.  That high rank is most attributable to a rising sentiment score driven by its put/call score almost doubling which could just as easily fall by half.  Its 91.4 volatility score is more encouraging as our institutional clients have found that metric to be an excellent secondary screen in their models.  The technical scores, which are driven by relative strength and moving averages, have been rising through the year from the 20s to the high 60s early this month but came down to the low 50s before yesterday’s hurricane on the Nikkei.  That decline actually helped DFJ’s technical score as the fund is now less overbought.  The verdict on Abenomics is still out but as the Japanese market sheds tears of rage, DFJ’s 8.48 Reward Rating suggests its nimble small caps may grow like they are forever young.

Looking across the desolation row of world markets yesterday, Quant has once again proven to be a handy dandy with its US focus. Aside from the addition of DFJ, the ranks look similar today with a few foreign and sector funds among those exposed to the US broad market.  When it looks like everything is broken, don’t let the markets make you a po’ boy and get you tangled up in blue.   With ETF Global identifying the best opportunities blowing in the wind, your ship has come in and ye shall be changed.  You gotta serve somebody and in the summertime and all the time we will paint our masterpiece for you.  While remembering the reason for Monday’s holiday, we wish you all a happy summer and we wish a happy birthday to Bob Dylan.

We have felt almost silly writing about low risk funds leading the ranks recently.  With central banks around the globe printing at an unprecedented rate, economists say we are in a low tail risk environment, so risk on!  Quant has disagreed by mostly favoring the US broad market funds that have lower Red Diamond Risk Ratings and have performed so well in 2013.  The various energy funds that have also scored well are the exception but the models have not favored the Japanese funds that have led world markets this year, until today.

It is looking like a red day on those world markets that reminds us to take a look at the risk levels in our portfolios.  ETF Global^sm assigns Red Diamond Risk Ratings to all 1,473 exchange traded products and we break them out beyond the overall ratings seen on a product’s tear sheet.  Under the Analytics button, the ETFG^sm Red Diamond Risk Ratings page lists all those products and their risk broken out into 6 categories.  The three categories dealing with price risk are volatility, deviation and country risk where each score represents a quantitative measurement of various industry metrics.  Higher scores mean higher risk and all products are cross ranked against the population to get their score.  It is the same process with integrity risk that assesses the structure, liquidity and efficiency of a given product.  Concentrated funds using swaps with wide bid ask spreads and high expense ratios will raise the score in all three categories which measure other factors as well.  The weighting of each category is shown at the bottom of the page and each product’s overall Risk Rating is calculated in the same cross ranked method.

The ETFG^sm Red Diamond Risk Ratings are reflective of those attributes and not predictive of future performance.  That is why Japanese funds have seen lower risk ratings even though that market is looking at a 7% decline today.  Our Green Diamond Reward Ratings have not been favoring those funds and we are feeling better about that today.  Time will tell if our market has risen on an improving economy or because of unprecedented Fed liquidity.  The mere hint that the Fed’s fat lady is warming up her vocal chords is sending some dancers back to their chairs.  You can decide for yourself on the appropriate level of risk for your portfolios, ETF Global^sm is here to help you select those exchange traded products that fit your needs.  Please send any questions to support@etfg.com.

Don’t bother crossing the world’s largest land border into the second largest country if you have any conviction worse than a speeding ticket in the last 5 years, Canada’s strict character criteria in its immigration policies will prevent your entry.   The country’s culture has helped sustain a strong economy and earned a higher ETFG^sm country score than the US which has helped the iShares MSCI Canada Index Fund (EWC) get up to 1^st place in today’s Quant ranking.   We have mentioned the fund to varying degrees over recent months and highlighted it on March 20^th when it jumped up to 3^rd place.

That was an early call for those looking for a long term position in a country with a solid currency.  We say early because it subsequently corrected by 7% but as we said on May 16^th, a rebound is boosting its Behavioral Score, up to 72.9 today and almost perfectly balanced with its 72.8 Fundamental Score.  It’s Quality and country scores are higher but its sectors counter that strength giving EWC a Total Score right at those other numbers, 72.9, which has been trending upwards in a way that has become more rare lately.  The weaker sector score reflects more than 36% of AUM in financials, with energy, materials and industrials accounting for another half.  IShares uses a “portfolio sampling” technique to track the MSCI Canada Index which has selected 95 constituents with the top 5 accounting for more than 25% and the top 10 more than 41% of AUM.

Keeping felons and US economists out of the country has helped Canada recover from the brutal 2008 recession better than other G8 countries thanks to heavy bank regulation, a pre-crisis budget surplus and increasing energy exports to Asia.  That explains it’s lower than average 3.43 Red Diamond Risk Rating which has trended higher over the year as the fund’s performance has lagged.  That said, its 9.28 Green Diamond Reward Rating predicts that lagging performance has run its course and EWC is ready to lead.   If you like the US because it is the cleanest dirty shirt, take a look at Canada whose shirt is even cleaner.