Measuring Performance Dispersion after the Russell Rebalance
The annual reconstitution of Russell Indices recently took place, an event that have influence on over $9 trillion in assets benchmarked to this family of indices.
What exactly did this year’s shake up mean to investors? This recent rebalance underlines an increasing disparity between large and small cap U.S. stocks. Specifically, big name stocks increased in market capitalization while smaller companies decreased in size. The nature of passive investing in ETFs has a major impact on how these stocks will perform on their own at least in the short term.
For active managers, the Russell rebalance can create opportunities for investors that have the proper technology tools to measure the strength and quality of price trends before and after the reconstitution. A well-constructed Model will help identify the Performance Dispersion among a large universe of stocks like the Russell indices. Successful investing is all about exploiting trends. It’s really that simple. With the availability of trend analysis data and technology, we believe that fund managers who adopt this intelligence will enhance their existing approach and beat their benchmarks. – Rocco Pellegrinelli, CEO of Trendrating
July Sector Allocation
To arrive at our monthly Sector Allocations, we delineate the S&P 500 universe of stocks into five groups based on their Smart Momentum Score (SMS). Any stock that has retraced at least 20% from a trend high is considered an outlier. The sector allocation is then found by looking at the proportion of names within quantile one for each sector. To control risk, no sector can represent more than double its weighting in the index.
The Model has seen some rotation over the past month. The Health Care sector has the largest move to overweight, followed by Real Estate and Materials. In contrast, Communication Services experienced the heaviest shit to underweight with Consumer Staples also dropping down. Our Model is neutral on Information Technology, Consumer Discretionary, and Industrials, which all had a deviation of less than +/- 2% from the index weighting.
Top Trending Stocks in the S&P 500
Each month we distribute the Trendrating 100 list to our clients. We delineate the S&P 500 universe of stocks into five groups based on their Smart Momentum Score (SMS) and retracement value. Any stock that has retraced over 13% from a trend high is considered an outlier. This leaves us with a list of names in which our Model has high conviction. The market environment will dictate the number of names in the Top 100 list, but it will typically range from 80-100 companies. Here will be highlighting the Top 25 companies each month. Contact Trendrating for the complete list.
Rating Grade: A = Strong Bull Trend / B = Emerging Bull Trend / C = Emerging Bear Trend / D = Strong Bear Trend
Smart Momentum Score (SMS): is a continuous rating scale between -3 and 3, measuring the strength of the trend since that trend began. The metric allows the model to differentiate between securities of the same ratings, whether that is an A, B, C or D rated security.
Retracement: The percentage off the peak of the trend for positive trends or off the bottom for negative trends.
Proven Effectiveness – A 20-year back test supporting Trendrating’s sector allocation approach
Trendrating Brochure – An overview of the services we offer
Pinnacle Trendrating Innovative Equity Fund (IPTRX) – A mutual fund utilizing our trend capture model
Contact us to request more information about Trendrating’s web-based platform
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Source: Nasdaq, Inc.