• Fundamental research from MarketGrader shows over-sold US equities present opportunity

• MarketGrader 100 index sees fundamental value in technology and industrials

• Large overweight position on energy held – Apache Corp emerges as top energy pick

The latest fundamental research on US equities from MarketGrader, the quant-based stock indices behind the pioneering ‘second generation’ Exchange Traded Funds (ETFs) from SPA ETF Plc, has shown that the US market is largely over-sold following the recent market volatility. It highlights that sectors such as information technology and industrials represent a buying opportunity. This research has been produced as a part of the six monthly rebalancing of the MarketGrader 100, which is a fundamentally driven and equally weighted index created by US research company MarketGrader. The SPA MarketGrader 100 provides investors with access to a basket of 100 top rated US equities based on MarketGrader’s analysis of a company’s fundamental attractiveness from a universe of 5,700 US equities.

As a result of the recent market volatility the turnover of stocks for the SPA ETF MarketGrader 100 has understandably been higher than normal, with a decrease in the allocation to the financial sector and a substantial increase in the allocation to industrial stocks and information technology stocks. MarketGrader has selected stocks that exhibit high growth characteristics (for example earnings growth) at relatively low price/equity ratios – in other words, Growth at a Reasonable Price (GARP). Relative to the S&P500 the Index is overweight energy, information technology, industrials and consumer discretionary; and underweight consumer staples, healthcare, and financials. Neil Michael, Head of Quantitative Strategies at SPA ETF Plc, comments:

“We feel that the SPA ETF MarketGrader 100 index has taken advantage of the buying opportunity in the largely over-sold US market and 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, 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 information technology and industrials has increased substantially. The SPA ETF MarketGrader 100 increased its position in information technology from 18.4% to 23% and increased its position in industrials from 8.2% to 16%. 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.

“In the financial sector our weighting has decreased from 18.4% to 13% of the portfolio. 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 subsequently the MarketGrader system is prioritising those.”

The sector breakdown of the SPA ETF MarketGrader 100 is now (previous figure in brackets):

• Consumer discretionary: 12% (12.2%)
• Consumer staples: 2% (4.1%)
• Energy: 23% (25.5%)
• Financials: 13% (18.4%)
• Health care: 5% (6.1%)
•  Industrials: 16% (8.2%)
• Information technology: 23% (18.4%)
• Materials: 6% (7.1%)

SPA MarketGrader ETFs utilise the performance of fundamentally driven indices created by US research company MarketGrader to provide private and institutional investors with access to a broad universe of US equities via an investment vehicle that has equal weighting, is rebalanced regularly, uses transparent data and selects stocks using 24 fundamental factors. ETFs can be traded in real-time on the world’s stock exchanges and savvy investors can buy and sell throughout the day at live prices rather than limiting themselves to the end-of-day price points available for open-ended fund investors. Investors also benefit from improved transparency as information on the securities’ underlying assets is published daily. 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 American Stock Exchange (Amex).

Six SPA MarketGrader ETFs exist on the LSE, Amex and Borsa Italiana:

• SPA ETF Plc MarketGrader 40
• SPA ETF Plc MarketGrader 100
• SPA ETF Plc MarketGrader 200
• SPA ETF MarketGrader Small Cap
• SPA ETF MarketGrader Mid Cap
• SPA ETF MarketGrader Large Cap

Each of the SPA ETF Plc MarketGrader 40, 100 and 200 are based on MarketGrader’s ‘core’ indices of top-rated North American securities. Whilst the SPA ETF MarketGrader Small Cap, Mid Cap and Large Cap are ‘cap’ indices based on the top 100 North American stocks within each market capitalisation category.