The latest fundamental research on US equities from research firm MarketGrader, which compiles the quant-based stock indices underlying the exchange traded funds from London-based Spa ETF,
The latest fundamental research on US equities from research firm MarketGrader, which compiles the quant-based stock indices underlying the exchange traded funds from London-based Spa ETF, indicates that the US market is largely over-sold following the recent market volatility and that sectors such as information technology and industrials represent a buying opportunity.
The research was produced as a part of the six-monthly rebalancing of the MarketGrader 100, a fundamentally-driven and equally-weighted index. The Spa MarketGrader 100 offers investors access to a basket of the 100 top-rated US equities according to MarketGrader’s analysis of the attractiveness of a universe of 5,700 US equities, using 24 fundamental factors.
As a result of the recent market volatility, the turnover of stocks for in the ETF has been higher than normal, Spa ETF says, with a decrease in the allocation to the financial sector and a substantial increase for industrial and IT stocks.
MarketGrader selects stocks that exhibit high growth characteristics (for example, earnings growth) at relatively low price/equity ratios. Relative to the S&P 500 the index is overweight in energy, IT, industrials and consumer discretionary, and underweight in consumer staples, health care and financials.
‘We feel that the Spa ETF MarketGrader 100 index has taken advantage of the buying opportunity in the largely over-sold US market,’ says Neil Michael, head of quantitative strategies at Spa ETF. ‘In the coming market rally, where cyclical stocks return to the lead and sectors that have been badly battered attract value-hunters, we expect the MarketGrader 100 index to perform well.
‘The MarketGrader 100 is overweight cyclical sectors and underweight defensive sectors, and is therefore well positioned to take advantage of the recent fiscal stimulation package from the US Treasury and the Federal Reserve interest rate cuts.
‘Following the six-monthly rebalancing of the Spa ETF MarketGrader 100, based on our fundamental and equally weighted approach, our weighting for IT has increased from 18.4 to 23 per cent and for industrials from 8.2 to 16 per cent.
‘These sectors seem to offer fundamental attractiveness, based on earnings reported so far during the current earnings season, and will also benefit from the low dollar and low interest rates. In particular stocks such as The Street.com and Graham Corp represent great value.’
By contrast, Michael says, the weighting of the financial sector within the portfolio has decreased from 18.4 to 13 per cent. ‘Since the indiscriminate selling seen in the market since October we are finding many highly graded companies, based on MarketGrader’s fundamental approach, in many other sectors, and the MarketGrader system is prioritising those,’ he says.
Demonstrating the company’s growing presence as a global provider of ETFs, Spa ETF Plc recently listed on the Borsa Italiana, following its listings last year on the London Stock Exchange (LSE) and (Amex).
Six Spa MarketGrader ETFs are listed on the London Stock Exchange, the American Stock Exchange and Borsa Italiana. The Spa ETF Plc MarketGrader 40, Spa ETF Plc MarketGrader 100 and Spa ETF Plc MarketGrader 200 are based on MarketGrader’s core indices of North American securities, with the number of stocks denoted by its name, while the Spa ETF MarketGrader Small Cap, Spa ETF MarketGrader Mid Cap and Spa ETF MarketGrader Large Cap contain the top-rated stocks in each market capitalisation category.
Spa ETF is supported by London & Capital, an independent firm of investment advisors and fund managers with USD3.4bn in assets under management offering services including investment expertise, research, quantitative analysis and regulatory authorisation.