Trendrating Monthly Research Brief – July 2020

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 

Methodology

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.

Suggested Allocations

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.

Active Weights across industries
Active weights across industries

Top Trending Stocks in the S&P 500

Methodology

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.

Top Trending Stocks in the S&P 500

Trendrating Terminology

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.

Additional Information

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

Disclaimer:

ANY AND ALL INFORMATION PROVIDED BY TRENDRATING OR DERIVED FROM TRENDRATING’S DATA IS PROVIDED “AS IS” AND TRENDRATING MAKES NO WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Trendrating has no affiliation with any company mentioned in this report.  

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.

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