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Spa ETF’s MarketGrader index rebalances from energy to financials


Specialist exchange-traded fund provider Spa ETF has announced the results of the latest quarterly rebalancing of the MarketGrader 40 Index.

Specialist exchange-traded fund provider Spa ETF has announced the results of the latest quarterly rebalancing of the MarketGrader 40 Index. The systematic overhaul of the index’s portfolio, drawn from the US’s 5,700 publicly-traded companies on the basis of 24 fundamental factors, has uncovered fundamental value in selected financial stocks in the wake of the sub-prime mortgage crisis.

By contrast, the rebalancing has seen an 8 per cent reduction in the exposure of the MarketGrader 40 to the energy market. In previous quarters, stocks in this sector received the maximum allocation of 30 per cent.

‘The Spa MarketGrader 40’s portfolio rebalancing provided some interesting insights into the US market,’ says Spa ETF director Daniel Freedman. ‘MarketGrader applies its methodology without being hindered by human emotion.

‘Despite negative sentiment around financials, MarketGrader has increased its allocation to financial institutions from 10 to 18 per cent, as it assessed a number of stocks as being undervalued.’

Neil Michael, head of quantitative strategies at Spa ETF’s sister company, wealth and asset management firm London & Capital, says: ‘The disciplined selection process of evaluating each stock according to its company fundamentals, grouped under growth, profitability, cash flow and value, has enabled MarketGrader to identify stocks that have not been affected by the credit crisis, such as those in insurance. To accommodate the increased weighting in the finance sector, it has reduced that of the energy sector, which offers less fundamental attractiveness.’

Spa offers institutional and retail investors access to ETFs based on the fundamentally-driven indices created by US research company MarketGrader’s quant-based system. Unlike standard indices that evaluate stocks based on fixed parameters, MarketGrader uses 24 quantitative filters to evaluate more than 5,700 North American stocks.

Each MarketGrader index periodically adjusts its holdings to ensure an equal weighting for, and an optimal grading of, all stocks. This process is designed to help avoid the pricing anomalies that arise from traditional market capitalisation-weighted indices.

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