High Reward and Risk in Indonesia

Emerging markets are getting a bounce in price and scores after a rout that has inflicted damage mostly on countries with large current account deficits.  With more than a third of AUM in the financial sector, the iShares MSCI Indonesia Investable Market Index Fund (EIDO) is a big Quant mover today jumping 89 positions into 6^th place.  It has an excellent 9.14 Green Diamond Reward Rating driven by a 98.1 Fundamental Score suggesting it is about as cheap as it has been since launching in May of 2010.  Being down more than 25% year to date explains its weak Behavioral Score and its Red Diamond Risk Rating rising up to an above average 5.52.

This had been a low risk fund when it ranked and performed so well last summer and fall.  It dropped out of the top 100 in late 2012 which may have been early but was higher than now.  It had a Risk Rating below 3 then but that has risen throughout 2013 as the fund has fallen in price.  Our Risk Ratings are not predictive but reflect attributes of a product’s trading and composition falling under several risk categories that you can see on the Red Diamond Risk Ratings page.  View all products and sort by any category or put a symbol or name in the search box to see it alone.  EIDO shows a high 7.40 Deviation score and an also high 6.84 Volatility score which are typical of leveraged and inverse products and reflect its recent rout.  That price drop has brought the Fundamental Score up so high but the factor most likely to drive performance does not get scored in our models and that is the value of the Indonesian rupiah.

Before investing in the emerging markets you need to fully assess the implications and ETF Global^® Risk and Reward Ratings are valuable tools in that process.  Fed taper talk is becoming increasingly important to the emerging markets and is likely to affect performance but if you are looking for high risk and reward, EIDO may fit your criteria.  Do your due diligence, fully assess the risk, PDF the Tearsheet and maybe take a trip there to make sure, it shouldn't cost too much after the currency slide.  ETF Global^® is proud to serve the financial community laboring to serve their clients in a low rate environment, enjoy the long Labor Day weekend! 

Quant Gets More Selective Internationally

Quant continues to wave the flag with 8 US ETFs in the top 10. The two China funds, 3^rd place GXC and 8^th place FXI, are lagging this week but still outperforming nicely since breaking back into the top ranks last month.  They lead the thinning ranks of foreign funds in today’s top 100, with 27 others making the list and an additional 11 Global funds.

They are weighted towards Asia with another China fund, PGJ, in 84^th place and Japan’s FJP in 72^nd.   iShares’ AAIT ranks 81^st with about a third of AUM in Japan.  If you want Asia without Japan, WisdomTree’s Asia Pacific ex-Japan Fund (AXJL) holds 19^th place and emerging Asia fund GMF ranks 23^rd.  Country specific Asian funds include South Korea’s EWY in 12^th place with low risk at 2.6 Red Diamonds, Indonesia’s IDX and EIDO in 74^th and 95^th, and Taiwan and Phillipines tied at 89^th place with EWT and EPHE. Broader emerging markets funds are led by ADRE in 14^th place; GMM, EEM and EELV in the top 50; and Vanguard’s VWO at 68^th.   Sticking with the EMs, we see Egypt’s EGPT holding its recent outperformance and 51^st place today.  Peru gets 80^th place with EPU and Russia’s RSXJ and ERUS rank 89^th and 93^rd.

Moving up the development scale to Europe, we see 4 specific country funds carrying lower than average Risk Ratings.  Austria’s EWO ranks 59^th, ENOR and EWD from Norway and Sweden rank 74^th and 84^th, and the Netherlands has EWN in 77^th place with a low 2.83 Risk Rating.  Pan European FEZ has been ranking better and outperforming since mid July and holds 33^rd place while FEU has outperformed to a lesser extent and is tied at 100^th place today.  iShares EFA has a heavy European weighting at 51^st place.  Canada’s EWC has been in the top 100 more often than not and holds 30^th place today.  It has low risk at 2.55 Red diamonds but also low return.

The global funds include SIL in 9^th place and recently highlighted SKYY in 10^th with other materials, energy and theme funds among the group.  As currency markets and geopolitics dominate the news, we have seen US funds reemerge into the upper ranks but Quant’s emerging markets stance remains at a lesser and more specific extent.  So check the Quant scores and ETFG^sm Tearsheets carefully and please send any questions to support@etfg.com .

US Sector Funds Scoring Better

The 2 China funds, SPDR’s GXC and iShares’ FXI, continue to score and perform well, holding 2^nd and 6^th place today but the other 8 of the top 10 are all US funds, a number we have not seen as high since early July.  Various sectors are represented and we thought it is a good time to take one of our regular looks at the sectors appearing in today’s top 100 ranked funds which on average have outperformed the S&P 500.

With WTI back above $110 per barrel, energy is dancing the war drum beat as Quant’s favorite sector with 9 funds in the top 100 with an average score of 69.7.  Yesterday’s highlighted XOP and XLE remain in the top 10 at 1^st and 8^th place but IEO has slipped to 21^st.  Technology has 8 funds on the list averaging 66.7 on their Quant scores and Vanguard’s Information Technology Fund (VGT) makes the top 10 in 9^th place. The materials sector sees 6 funds appearing in today’s top 100 and their average score of 69.1 beats the 8 technology funds as does their average 7.96 Reward Rating.  Only XME makes the top 10 in 4^th place with the silver miners in SIL close at 11^th.

Those are the favorite sectors as there are only 2 health care and industrial funds on the list and all 4 are Powershares smart beta funds.  Their pharmaceutical fund, PJP, gets 89^th place with a score of 65 but their S&P SmallCap Industrials Portfolio (PSCI) that we highlighted August 22^nd remains in 5^th place with a score of 73.3, an 8.48 Green Diamond Reward Rating and only 2.9 Red Diamonds.  Powershares also has the sole financial fund in the top 100 with smart beta PFI in 80^th place.  Consumer staples does a little better with the iShares Dow Jones U.S. Consumer Goods Index Fund (IYK) in 65^th place.  There are no funds from the consumer discretionary, telecommunications or utilities sectors making today’s top 100.

As President Obama prepares his scalpel for a surgical strike on Syria, Quant is waving the flag and turning its focus to some oversold US funds.  Currency volatility is also shaking money out of certain emerging markets that is landing back home in the US.  We will save a tour of the international offerings in Quant’s top 100 for another day.  Thank you for checking in to ETF Global^® today.

War Drums Reverberate in Energy ETFs

Buy when the bombs fly but in the meantime focus on energy.  5 of today’s top 10 are US funds with 3 of them energy sector based.   Regular readers know the 2^nd place SPDR S&P Oil & Gas Exploration & Production Fund (XOP) as a member of the top 10 for most of 2013.  It has had a rocky ride but mostly kept pace with the S&P 500’s huge rally.  iShares’ competing Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (IEO) in 5^th place, has spent most of this year in the top 50 and performed about as well depending on the time frame. If you like them big and broad, SPDR’s big daddy Energy Select Sector Fund (XLE) with over $8 billion in AUM places 9^th today and has only begun to outperform since last week’s “moral obscenity” in Syria.

Comparing the group in the ETFG^sm Scanner (sort by Quant and check each fund’s compare box and then the orange Compare button) we see them trading at discounts to the market with higher Risk Ratings.  The discounts suggest we may be currently on the favorable side of that higher risk.  You can choose which metrics to display under the Filter button and see the group’s Quant Report with that button.  The notable Quant differences appear among the E&P funds where IEO has better sentiment readings thanks to higher put/call and short interest scores.  Differences in constituents account for the disparate Fundamental Scores where XOP’s 79.9 beats IEO’s 67.4.  The ETFG^sm Tearsheets show XOP is equally weighted with Forest Oil at 1.81% in its top position while IEO has Occidental Pete accounting for 13.2% of AUM.  If you sort each fund’s constituents alphabetically they look more similar.  XLE is market cap weighted with Exxon Mobil holding more than 16% of assets.

We do not yet know what the consequences will be for Syria crossing the red line but months of Hans Blix playing cat and mouse with tyrants may make energy the only place to hide.  ETF Global^® does not do geopolitics but they have a way of affecting the market based indicators so integral to our quantitative models.  Those strengthening Behavioral metrics have met strong Fundamentals to place these 3 among today’s top 10.  We will listen to the beat of the war drums and convey the models’ message each day, thanks for checking in today. 

China and Emerging Markets Recover

We have been following the recent volatility in emerging markets attempting to discern if the two month rally is ending and the answer seems to lie within the confines of the Federal Reserve.  Last week’s taper fears have subsided with weak home sales and disagreement among central bank governors.  So as the Carpenters sang, it looks like we’ve only just begun. 

It has been all white lace and promises for the SPDR S&P China Fund (GXC) getting all 10 Green Diamonds for the 18^th time since July 12^th and 15 of the last 17 days.  It has gained about 8% in those 6 weeks that the US market has lost about 1%.  Performance like that certainly earns its 1^st place rank and the iShares FTSE/Xinhua China 25 Index Fund (FXI) has earned its 3^rd place rank by performing as well despite scares last week.  Scores are similar to when we highlighted both funds last Wednesday with the exception of better Behavioral Scores today resulting from higher volatility readings.  That volatility knocked a couple of broader emerging markets funds out of the top 10 but the Powershares BLDRS Emerging Markets 50 ADR Index Fund (ADRE) has come back to 4^th place today and their S&P Emerging Markets Low Volatility Portfolio (EELV) has come back to 6^th.  EELV was also covered Wednesday with almost the same scores except for its higher Behavioral Score today on the same uptick in volatility.  We mentioned ADRE a few times in July and early August but haven’t highlighted its more balanced scores with 67.9 on the Behavioral side along with its better 78.4 Fundamental Score.  Short interest, implied volatility and short and intermediate term technicals all drive the Behavioral side while the Fundamentals are driven by 98 in both cash flow and book value scores.  3 of the 4 ETFs have Red Diamond Risk Ratings above 5 with EELV coming in below average at 3.49, as its name would suggest.

With so many roads to choose from, Quant helps us share horizons that are new to us and we will watch the signs along the way here at ETFG^sm Daily Perspectives.   Those signs say the emerging markets still have room to grow and yes, we’ve just begun.  Even before the Carpenters began to sing, a pioneering woman was elected to membership in the NYSE, more than 45 years later we wish Muriel Seibert peaceful eternal rest.

ETFs Provide Price Discovery

We do not know if Eddie Snowden bought his way out of China with Nasdaq’s computer code but from what we have heard about the NSA, he probably had access to it.  We do know that during yesterday’s 3 hour trading halt, NYSE listed ETFs were providing price discovery on where the underlying equities would likely be trading when the connectivity issue was finally resolved.  Trading in the Vanguard Information Technology Fund (VGT) was choppy throughout the hiatus but did capture the upward bias that was developing into the close.  It is a constituent in the ETFG Quant Equity 12 Index which gained 1.6% on the day, almost double the S&P’s gain.  Its best performers were the emerging markets constituents which are scoring better today and the 2 China funds, GXC in 2^nd place with 10 Green Diamonds and FXI in 3^rd.

Published under the ticker ETFGQE12, the smart beta index represents monthly selections from our Quant model with liquidity constraints.  You can follow it under the Dynamic tab on our home page index screen and clicking on it will bring up its 12 constituent ETFs.  At the bottom of that screen we provide further information including a detailed fact sheet showing its performance exceeding the popular benchmark proxies SPY and ACWI over its first year.  The ETFG Quant Equity 10 Index (ETFGQE10) is similarly comprised but without the liquidity constraints and it performed even better.  We also publish the market performance ETFG Global 500 Index (ETFG500) representing the 500 largest ETFs, excluding leveraged and inverse.  It is the first benchmark to cross asset classes and regions providing performance discovery for managers who take full advantage of the exposures that ETFs provide.

Beyond those 3 published indices, we have several more that slice the markets by Asset Class, Geography, and Sectors.  Others not appearing include a market neutral index that gained more than 10% in its first year and custom ones designed to client specifications. You can get tracking data on the 500 free of charge and others on a contractual basis, please contact us to learn more.  By providing liquidity during the outage, ETFs further cemented their importance to the marketplace and ETF Global^® is proud to be part of the burgeoning industry. Residing in old midtown office space we can sympathize with connectivity issues when it rains so our market participants can always call us at 212-223-ETFG. 

SmallCaps Insulated from Currency Turmoil

Since the late June low, we have mentioned a top ranking fund several times but have yet to highlight it.  It handled that decline very well and also outperformed on the July rebound, ranking in the top 10 for most of the month.  It fell out of the top 25 in early August but is back at 5^th place today having held a bottom from 2 days ago.   With a high 8.84 Green Diamond Reward Rating, the Powershares S&P SmallCap Industrials Portfolio (PSCI) gets there with a low 2.74 Red Diamond Risk Rating.  That wide risk reward spread is only one of the pretty attributes on its ETFG^sm Tearsheet.

Right below those diamonds are PSCI’s Quant scores showing 70s or better across the board. Technicals edge out sentiment on the Behavioral side and cash flow and yield drive the Fundamental Score with earnings and book value lagging.  Its chart does not excite until you look at more than the past month.  It has outperformed in downturns and even more on the rallies.  Tracking the industrial subset of the S&P SmallCap 600 Index, the fund is up more than 21% this year after gaining more than 16% in 2012 so it is a hot segment after lagging in 2011.  You can see all that under the Performance tab at the top of the Tearsheet.  We have also added pages showing Product Info and Fund Flows for most products although not yet for this one.

Back to the Summary page, PSCI’s pie charts are all red, like most sector funds, until you scroll down to the industry and sub industry pies.  Scrolling over a slice will make it pop out so it is easy to read.  We get a lot of compliments on our holdings screen where you can see all of its 84 constituents without leaving the page.  Back at the top you can PDF the Summary Page for your due diligence file or to give to clients.

With 100% exposure to the US Dollar, PSCI is unshaken by the waves hitting the international currency markets struggling to assess Fed liquidity.  Small caps also tend to have more of their business in the US providing further insulation.  A low risk, high reward name that is outperforming, PSCI is the kind of idea for which you come to ETF Global^®, and we thank you for that. Please send any questions to support@etfg.com.