Quant is feeling a little Loonie this morning, not the Daffy Duck way but the Canadian way as the iShares MSCI Canada Index Fund (EWC) jumped 43 positions into a 3 way tie for 8^th place with two of the tech funds mentioned yesterday.  It gets up there on a spike in its Sentiment Score which saw big gains in the Put/Call and Short Interest measures.  Other measures come in the high 60s, not bad but not great, so we will see if those sentiment measures drive up the technicals over coming days.  The fund is weighted towards the financial industry that funds Canada’s natural resource based economy and those energy and mining companies come right behind financials in the fund’s higher weightings.  It gets a high 9.21 Reward Rating while carrying a low 3.1 Risk Rating.  Not bad eh?  But if you don’t think this one will turn your Loonies into Twonies, take a look down south at another natural resource driven economy, Peru.  Here we see the iShares MSCI All Peru Capped Index Fund (EPU) jumping 188 positions into 23^rd place, one of Quant’s biggest movers today.  That jump is partially accounted for by a large drop in the prior day’s Sentiment Score which regular readers know is Quant’s more volatile score.  But even if we take that out, the fund has been trending along the high double digit ranks recently and today we see it back in the top 25 where it got a few times over the past month.  We hope its return to those upper ranks will bring some outperformance this time.  This fund gets a 9.61 Reward Rating with another low 3.94 Risk Rating.  If you like Canada more because it has an English Common Law legal system, you might also like Malaysia.  Like Canada and Peru, it also has a resource based economy. Also like those other two, the iShares MSCI Malaysia Index Fund (EWM) has heavy weightings in the financial sector.  Unlike the other two, EWM has not been seen in the upper ranks until today’s 94 place jump into Quant’s 20^th position.  It gets an above 9 Reward Rating at 9.07 but this time we see an even lower Risk Rating of 1.33 which can be explained by the tight trading range on its 1 year price chart.  Its 72.7 Behavioral Score suggests it may be ready to break out of that range.  Its Fundamental Score of 69.2 is held back by its lower than usual yield and middling P/E but its Price/Cash Flow and Price/Book Value ratios are about as low as they have ever been.  Asia, South America, or our neighbors in the Great White North; wherever your sentiments lay, Quant has investing ideas for you today. 

A couple of recent top 10 members are back in that group as iShares sees its MSCI Spain and Emerging Markets Index Funds (EWP and EEM) back at 8^th and 9^th place this Monday morning. In 10^th place is the iShares Dow Jones US Technology Index Fund (IYW) which has been quietly climbing the Quant ranks for the last couple of months.  The fund has about 85% of its assets evenly split between the Software & Services and the Hardware & Equipment industry groups.  You could consider Apple Inc. to also straddle those groups and it comprises almost 22% of the fund, and similarly straddling IBM comprises 8.51%.  Microsoft is trying to become a hardware provider and it takes 8.42% of IYW. Having almost 40% of its assets in 3 names doesn't leave much room for the other 142 constituents to effect the performance so make sure you like those companies before buying this fund.  Another 8 Green Diamond fund this morning is considered a tech fund and has almost 60% of its assets split between software and hardware but the rest is allocated to the consumer and health care.  That would be today’s 17^th place Powershares QQQ Trust Fund (QQQ) tracking the NASDAQ 100.  Apple and Microsoft have lesser 17% and 7.5% weightings and no NYSE listed IBM.  This one has also been climbing quietly over recent months.  Besides those big positions, both funds share very strong Fundamental Scores in the 90s but very weak Technical Scores in the 20s.  It is rare to see such weak Technical Scores in the top ranks but these two have high Sentiment Scores boosting their overall Behavioral Scores which will hopefully boost those technicals soon.  A third technology fund scoring well today has also been a quiet riser and is beginning to outperform the general market.  That one is the iShares PHLX SOX Semiconductor Sector Index Fund (SOXX) in 15^th place today. No straddles in this industry specific fund and no Apple either but we do see 3 constituents accounting for more than a quarter of AUM.  The largest, Taiwan Semiconductor Mfg, has gotten a lift on hopes it could replace Samsung as Apple’s primary chip supplier.  Fundamentals here score a very respectable 81.1 and the Behavioral Score is more evenly divided between technicals and sentiment both scoring in the mid 60s.  Its P/E is higher than the other two but its other fundamental measures compare more favorably.  All three funds get 8 Green Reward Diamonds and 4 Red Risk Diamonds but SOXX actually has a lower 3.81 Risk Rating.  Other than that we are seeing higher risk ratings creep into Quant’s higher ranks with the top 10 having an average Risk Rating of 4.7, higher than the top 100 average of 4.26 but still lower than the all equity ETF average of 4.8 Red Diamonds.  We will follow this rising risk theme and thank you for following us, please share any questions or feedback with us at support@etfg.com and have a nice week.

Ladies and gentlemen, start your engines!  It may be almost 6 months until the 97^th running of the greatest spectacle in sports but we have Indy on our mind this morning.  That’s because sitting in Quant’s 6^th position is INDY whose nifty ticker belongs to the iShares S&P India Nifty 50 Index Fund.   The fund made a big push to pass 47 other funds overnight to get into Quant’s lead lap with those US and China funds that we have been following.  A quick look at its chart shows why.  The S&P 500 has gained almost 4.5% since it bottomed on November 15^th, INDY has been burning rubber since then gaining 7.27%.  That has turbocharged its Technical Score up to 75.3 this morning from 44 yesterday with all three time frames leaving the competition in its dust.  Its Sentiment Score of 71.8 has been elevated since that rally began to gather steam in late November but is down a few points over recent days.  Quant loves that kind of momentum but a look beneath the hood shows the fundamentals to be just as impressive.  A yield of 0.47% may not look too impressive but it is about as high as it has ever been, as its Price/Cash Flow ratio of 2.81 is about as low as it has ever been.  Tempering those hot numbers are Price/Earnings and Price/Book Value ratios that come in the middle of their historical range but still contribute to a high 78.1 Fundamental Score.  The Indy Racing League has yet to schedule a race in India and Quant only gives it a 67.9 Country Score which contributes to INDY’s low 56 Global Theme Score.  The low number of constituents also restrains its Quality Score but good liquidity and a strong sponsor in iShares get that one above 70.  All in all those are nicely balanced scores and like the word racecar itself, this one looks just as good whether you see it frontwards or backwards.  We have a long cold winter ahead before race fans come back home to Indiana next Memorial Day weekend but in the meantime Quant thinks we should take a ride in INDY.  Thanks for reading and happy racing!

This morning’s Wall Street Journal says a government study recommends the United States begin exporting some of our newly found abundant natural gas.  Quant doesn't read newspapers but coincidentally ranked the SPDR S&P Oil & Gas Exploration & Production Fund (XOP) in 5^th place this morning, its highest rank since early October.  Since that prior high ranking, it has performed mostly in line with the S&P 500 but maybe that was just a false start and this is the time that it will begin to truly outperform. It is poised for a pop in that all three of its sentiment measures are scoring above 90.  Eventually all those puts and shorts will have to be covered and Quant thinks that will be sooner rather than later.  That’s confirmed by its 90.5 Volatility Score which suggests the selloff it has seen since mid September has indeed run its course for now.  Those Sentiment Scores account for half of the overall Behavioral Score which combines them with the Technical Scores which are OK but not great at 60s across the three sub categories.  On those the short term is better than the intermediate term which is better than the long term.  We can use our ETFG Scanner and adjust the filter to display its fundamentals and compare them to the market and other sector funds.  Here we see a P/E less than 11, a Price/Book Value of 1.37 and a Price/Cash Flow of 3.68, all cheaper ratios than the market and broad energy sector ETFs.  Only its yield of 0.90% compares unfavorably but that shouldn't be surprising as these companies are busy plowing all available capital into drilling projects.  Despite those cheap valuation metrics, they have been cheaper historically which keeps XOP’s overall Fundamental Score at 64.4 today.  There is palpable fear that the companies comprising this fund are sowing their own destruction by producing more energy than the market can consume.  Natural gas and oil prices have recovered from their summer lows but many of these companies have stretched their balance sheets so far that the recovery in prices may not be enough.  Having new markets open for their products should help but we all know government studies often do not get past the front page fanfare of their announcement day.  However, Quant suggests the fanfare today may be enough to shake out those shorts and fire up this fund for the next few months.

Guten Morgen. We have been highlighting some weak sisters of Europe lately where the iShares MSCI France and Spain Index funds (EWQ and EWP) have been scoring well and performing well.  Each is up during the recent selloff.  We haven’t had a chance to write about Europe’s sugar daddy, Germany, because it hasn’t been scoring as well.  Until today as the iShares MSCI Germany Index Fund (EWG) jumped 46 positions overnight into Quant’s 12^th position, tied with iShares’ Emerging Markets and S&P 500 Index Funds (EEM and IVV).  The fundamentals of Germany’s fiscally balanced economy are strong but this fund’s Fundamental Score is a middling 63.1 today which doesn't mean it’s fundamentally weak but just not cheap on a historical basis.  iShares funds usually have very good Quality Scores but this one’s 52 constituents limit its Diversification Score to only 35.2 which keeps its Quality Score at 76.5, not bad but not the reason for its high rank today.  For that we need to look into its 80.5 Behavioral Score.  It gets that high on a very high 82.3 Sentiment Score and a solid 78.7 Technical Score.  The former is driven by a persistently high Short Interest Score and a rising Put/Call Score.   On the technical side we see its recent good performance reflected in an 87.3 Short Term Score but its Intermediate and Long term scores of 81 and 74 are sweet tortes too.  It has a low Red Diamond Risk Rating of 3.9 providing yet another example of Quant favoring the lower risk names, so proceed mit vorsicht.  Yesterday’s Wall Street Journal had an interesting interview with Germany’s Finance Minister Wolfgang Schäuble which we recommend for anyone following the Euro story.  In it he explains his country’s strategy to make the rest of Europe more like Germany, at least as far as fiscal policy is concerned.  He likens himself to Sisyphus constantly rolling a boulder up a hill.  That mythical Greek figure was condemned to do that forever only to see the bolder roll back down each time.  We hope for a better outcome regarding Herr Schäuble’s efforts and Quant thinks he may at least have a breeze at his back for the next few months.  So if it has been too much for your gut to bear investing in France and Spain, you now have a go ahead to allocate some of your equity dollars to Europe’s strong horse.  Viel Glück und auf wiedersehen.

It is going to be difficult for the  average performance of today’s top 25 ranked funds to beat the S&P 500, even the top 10 will be encumbered versus that benchmark.  The reason is because the three S&P 500 index funds all make the top 25 today with Vanguard’s VOO in 4^th place.  The iShares (IVV) and SPDR (SPY) versions come in 8^th and 12^th place.  VOO gets the higher rank on a higher Fundamental Score but of course the fundamentals of all three are the same.  The reason is the Vanguard fund has only been around since late 2010 and Quant’s fundamental measures cover a longer time frame, in this case a time that included some better measures that make the others look not as cheap in the larger context.  So disregard VOO’s 85.7 Fundamental Score and assume it is more like the other two’s still strong 74.  On the behavioral side we see some similar quirks accounting for differences where we wouldn’t expect.  The two older funds get a Technical Score of 60.7 while the higher ranked VOO gets 61.8, historical context is the reason again so go with the lower scores that include Quant’s full time span.  All three have long term scores better than intermediate term and better still than the short term measures so a time out in the rally may be in order.  A shorter life is not the reason for VOO’s lower Sentiment Score of 60.7 which is more than 10 points lower than the other two.  Size is what matters here as the bigger funds have greater short interest and option activity making them easier subjects for bearish speculative trades.  Since all three do an excellent job of tracking the index, you shouldn’t expect a high put call ratio or short interest to boost performance of one versus the others.  All three funds get very high Quality Scores in the 90s with the older two getting a slight edge.  Summing it all up, if VOO had been around longer it would probably be ranking a few points lower, and the discrepancy between IVV and SPY is not as large as it looks as the former is in a 3 way tie for 8^th place so only one fund separates them; that would be the iShares S&P 500 Value Index Fund (IVE) which we highlighted Friday.  It is rare for three funds to track the same index and it helps provide a good primer on how Quant works.  That said we have been hearing a clear message that the S&P 500 is a good place for your equity allocation over the next few months.  It may lead to today’s lists being among the few that do not beat that index but Quant says on average they will beat most other benchmarks over that time.  If you would like an in depth explanation of how Quant works, please let us know at support@etfg.com or call your sales rep.  We are here to help.

A couple of weeks ago on November 16^th we mentioned the Powershares Dynamic MagniQuant Fund (PIQ) as a quiet riser in Quant that we were going to keep our eye on.  It ranked in 14^th place then, dropped down out of the top 25 but is back in 14^th place this morning so we decided to put our second eye on it too.  It’s different from Quant’s other ranked funds in that its portfolio is reconstituted every quarter, most recently in November.  That adds a different dynamic to the Fundamental Score which is usually calculated on the same constituents.  So today’s 89.2 Fundamental Score doesn't necessarily imply that those constituents are as cheap as they have been almost 90% of the time but that  the fund is holding positions that are as fundamentally cheap as they have held almost 90% of the time.  Those positions are selected using a quantitative algorithm that analyses the 2000 largest US companies that it predicts will have the greatest potential for capital appreciation.  That recent reconstitution skewed its 198 holdings towards the small cap and consumer discretionary sectors; we are seeing a lot of small cap funds score better but not too many consumer funds (although Friday’s top ranked IVE also had large exposure there).  Historically it has not proven to be as good as ETFG’s Quant model in that it has lagged the S&P 500 in most years but this year it is slightly outperforming as it has over the past two weeks as well.  That has boosted its Technical Score to 73.6 and put it back into Quant’s upper ranks.  Our interest in this fund is a bit parochial in that it may give a hint to how Quant will perform when managed equity ETFs become more popular as we expect will happen over coming years.  While this one isn't actually managed, it isn't as static as most other index based funds.  We have been hinting about Quant’s outperformance quite a bit in this space and are getting ready to put some meat on those bones.  We have been conducting an exhaustive study of Quant’s overall performance which we will announce in coming days, so keep your eyes on this space for that exciting news.  Suffice it to say we have found the ETF Global Quant model to be better than others even though it likes the Powershares Dynamic MagniQuant Fund today.