Breadcrumbs

October, 2013: "Risk On" Favors International

The October reallocation resulted in a decisive rotation out of domestic equities and into international equities, including strong exposure to Europe and more limited exposure to China. PCM's Global Tactical Index rotated to New Zealand, Germany, Spain, France and Austria. After hitting all time highs at the end of September, the PCM US Industries Total Return Index committed 25% each to pharmaceuticals, medical devices, dynamic media, and the insurance industry.

The PCM US Bond Index remained 75% in very short maturity US Treasuries and rotated the remaining 25% allocation from inverse 20 year US Treasuries to high yield corporate bonds. The PCM Absolute Bond Index is now 50% very short maturity treasuries and 50% international corporate bonds, continuing the theme of "risk off" in the US, but not necessarily internationally. Due in part to the multi-directional ability of these indexes, the PCM Absolute Bond Index composite was ranked as achieving "Top Guns" status within the Informa Investment Solutions' manager ranking database for 2Q 2013. We are looking forward to seeing if our Emerging Market Equity Total Return Index can achieve a similar award for third quarter 2013.

By: Melissa Wieder, CFP®, Director Institutional Services

Collaborative insight provided by Co-CIO's Michael Chapman and Todd Wood

About "PCM Quant Coalescence"


Welcome to Provident's bi monthly "Quant Coalescence" communication. We suspect that many of you are no different than us. That is to say that when our quantitative models rebalance every 2 weeks for some indexes or once a month for other indexes, you sometimes find yourselves asking "What is behind a rotation into that ETF?" This communication is our opportunity to "unite for a common end" with our clients and partners; keeping you updated on our thoughts and perspectives. As you know, our indexes are based on an absolute approach: we strive to make money in up markets or down markets, while trying to greatly minimize loss in any market environment.
Our indexes are also quantitative, reflective of our systematic, unbiased and technical approach. Since our indexes are unbiased, the quantitative models would obviously at times rotate into positions that cause us to scratch our heads. Nevertheless, being so close to the analysis as it unfolds, allows us to quickly begin to validate the fundamental reasons behind the quantitative "following of the money." At other times, the trades are not validated right away; the story unfolds as the days pass. We have been very excited about many of these "validations" and "ah ha" moments. We had another "ah ha" moment when we decided that these insights would also be interesting to those who have entrusted us with their financial peace of mind. Our goal is to be short and to the point, specific to what is happening in our indexes rather than a lengthy macroeconomic perspective.

We hope this has been helpful and informative!

September, 2013:

The September quant analysis resulted in an all-around reallocation to the defensive side due to uncertainty over when and how much the Fed will taper and worries over the US response to events in Syria. Bonds continue to shed value with the 10-year yield lurking towards 3%. PCM’s Global Tactical Index rotated to an inverse of the Dow Jones, inverse of 20 year US treasuries, long the Euro and long 1-3 year treasuries. The PCM US Industries Total Return Index  committed equally to the defensive healthcare and medical devices industries and short the Dow. The Alpha One Index continued the defensive theme, positioning long short-term US treasuries.

The PCM US Bond Index and PCM Absolute Bond Index  both continued a commitment to a spread between short long-term treasuries and long short-term treasuries.

Kudos to Provident! The PCM Absolute Bond Index composite ranked “Top Gun” status by Informa Investment Solutions for Q2 2013. Informa Investment Solutions is a database of portfolio managers allowing for the investment community and clients to evaluate portfolio managers and make informed investment decisions. For more information, visit www.imformais.com.

By: Melissa Wieder, CFP®, Director Institutional Services

Collaborative insight provided by Co-CIO’s Michael Chapman and Todd Wood

The views and strategies described herein are for illustrative purposes only and may not be suitable for all investors. The information is not based on any particularized financial situation, or need, and is not intended to be, and should not be construed as investment advice or a recommendation for any specific PCM or other strategy, product or service. Investors should consult their financial advisor prior to making an investment decision. There is no guarantee that these investment strategies will work under all market conditions and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. This material contains the current opinions of the author(s) but not necessarily those of PCM and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.  No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission. Provident Capital Management, Inc, PCM and Absolute Return Index are trademarks or registered trademarks of Provident Capital Management, Inc., in the United States.©2013, PCM.

About "PCM Quant Coalescence"

Welcome to Provident's bi monthly "Quant Coalescence" communication. We suspect that many of you are no different than us. That is to say that when our quantitative models rebalance every 2 weeks for some indexes or once a month for other indexes, you sometimes find yourselves asking "What is behind a rotation into that ETF?" This communication is our opportunity to "unite for a common end" with our clients and partners; keeping you updated on our thoughts and perspectives.  As you know, our indexes are based on an absolute approach: we strive to make money in up markets or down markets, while trying to greatly minimize loss in any market environment.

Our indexes are also quantitative, reflective of our systematic, unbiased and technical approach.  Since our indexes are unbiased, the quantitative models would obviously at times rotate into positions that cause us to scratch our heads. Nevertheless, being so close to the analysis as it unfolds, allows us to quickly begin to validate the fundamental reasons behind the quantitative "following of the money." At other times, the trades are not validated right away; the story unfolds as the days pass.  We have been very excited about many of these "validations" and "ah ha" moments. We had another "ah ha" moment when we decided that these insights would also be interesting to those who have entrusted us with their financial peace of mind. Our goal is to be short and to the point, specific to what is happening in our indexes rather than a lengthy macroeconomic perspective.

Mid-August, 2013: Europe Sees Long Awaited Growth in GDP

The mid August reallocation saw global indexes continue to hold equities, however, there was a strong rotation by PCM’s Global Tactical Index from US equities into the European markets, specifically Austria, the Netherlands, France and Spain. This came on the heels of Europe reporting growth in GDP after a record 6-quarter long double dip recession. (see zerohedge.com article). In a further quantitative vote of confidence for the region, the Euro, represented in our models by ETF ticker FXE, was the main choice for the next two weeks in the Alpha One Index.

The PCM US Bond Index and  PCM Absolute Bond Index  both committed to the inverse 20 year treasury bond. Due in part to the multi-directional ability of these indexes, the PCM Absolute Bond Index composite  was ranked as achieving “Top Guns” status within the Informa Investment Solutions'  manager ranking database for 2Q 2013.

As of the end of July, the PCM US Industries Total Return Index reached another all-time high.

By: Melissa Wieder, CFP®, Director Institutional Services

Collaborative insight provided by Co-CIO’s Michael Chapman and Todd Wood

The views and strategies described herein are for illustrative purposes only and may not be suitable for all investors. The information is not based on any particularized financial situation, or need, and is not intended to be, and should not be construed as investment advice or a recommendation for any specific PCM or other strategy, product or service. Investors should consult their financial advisor prior to making an investment decision. There is no guarantee that these investment strategies will work under all market conditions and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. This material contains the current opinions of the author(s) but not necessarily those of PCM and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission.Provident Capital Management, Inc, PCM and Absolute Return Index are trademarks or registered trademarks of Provident Capital Management, Inc., in the United States.©2013, PCM.

About "PCM Quant Coalescence"

Welcome to Provident's bi monthly "Quant Coalescence" communication. We suspect that many of you are no different than us. That is to say that when our quantitative models rebalance every 2 weeks for some indexes or once a month for other indexes, you sometimes find yourselves asking "What is behind a rotation into that ETF?" This communication is our opportunity to "unite for a common end" with our clients and partners; keeping you updated on our thoughts and perspectives. As you know, our indexes are based on an absolute approach: we strive to make money in up markets or down markets, while trying to greatly minimize loss in any market environment.

Our indexes are also quantitative, reflective of our systematic, unbiased and technical approach.Since our indexes are unbiased, the quantitative models would obviously at times rotate into positions that cause us to scratch our heads. Nevertheless, being so close to the analysis as it unfolds, allows us to quickly begin to validate the fundamental reasons behind the quantitative "following of the money." At other times, the trades are not validated right away; the story unfolds as the days pass.We have been very excited about many of these "validations" and "ah ha" moments. We had another "ah ha" moment when we decided that these insights would also be interesting to those who have entrusted us with their financial peace of mind. Our goal is to be short and to the point, specific to what is happening in our indexes rather than a lengthy macroeconomic perspective.

August, 2013: Volatility on the Rise

The August reallocation saw global indexes continue to hold equities. The small cap Russell 2000 Index, represented in our models by ETF ticker IWM, was the strongest equity class. All indexes, with the exception of PCM US Bond Index, exited the TBF position, which is the short 20 year treasury bond. The Global Tactical Index favored France and the Netherlands along with broad based dividend payers and the industrials. As of the end of July, the PCM US Industries Total Return Index reached another all-time high.

PCM Absolute Bond Index is now long both international treasuries and international corporates. The street consensus still favors the probability that a start to a tapering of quantitative easing will begin in the Fall, so we all may want to tighten up our seat belts.

By: Melissa Wieder, CFP®, Director Institutional Services

Collaborative insight provided by Co-CIO’s Michael Chapman and Todd Wood

The views and strategies described herein are for illustrative purposes only and may not be suitable for all investors. The information is not based on any particularized financial situation, or need, and is not intended to be, and should not be construed as investment advice or a recommendation for any specific PCM or other strategy, product or service. Investors should consult their financial advisor prior to making an investment decision. There is no guarantee that these investment strategies will work under all market conditions and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. This material contains the current opinions of the author(s) but not necessarily those of PCM and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission.  Provident Capital Management, Inc, PCM and Absolute Return Index are trademarks or registered trademarks of Provident Capital Management, Inc., in the United States.©2013, PCM.

About "PCM Quant Coalescence"

Welcome to Provident's bi monthly "Quant Coalescence" communication. We suspect that many of you are no different than us. That is to say that when our quantitative models rebalance every 2 weeks for some indexes or once a month for other indexes, you sometimes find yourselves asking "What is behind a rotation into that ETF?" This communication is our opportunity to "unite for a common end" with our clients and partners; keeping you updated on our thoughts and perspectives.  As you know, our indexes are based on an absolute approach: we strive to make money in up markets or down markets, while trying to greatly minimize loss in any market environment.

Our indexes are also quantitative, reflective of our systematic, unbiased and technical approach.  Since our indexes are unbiased, the quantitative models would obviously at times rotate into positions that cause us to scratch our heads. Nevertheless, being so close to the analysis as it unfolds, allows us to quickly begin to validate the fundamental reasons behind the quantitative "following of the money." At other times, the trades are not validated right away; the story unfolds as the days pass. We have been very excited about many of these "validations" and "ah ha" moments. We had another "ah ha" moment when we decided that these insights would also be interesting to those who have entrusted us with their financial peace of mind. Our goal is to be short and to the point, specific to what is happening in our indexes rather than a lengthy macroeconomic perspective.

Mid-July , 2013: Earnings Reverting to Historical Mean?

Our mid July reallocation resulted in a commitment to U.S. small, mid and large cap equities. More specifically, the financials and consumer discretionary were the sectors to which our Global Tactical Index rotated. Our quantitative models are also favoring oil and short U.S. treasuries. As earnings season gets in full swing, we continue to be concerned about the fundamentals of equities. Specifically, profit margins are very high compared to the long term mean and although the market itself is not trading at unreasonable multiples, a return to the mean in corporate profit margins could be a catalyst for a sharp sell off in equities. We are seeing a hint of mean reversion as this earnings season kicks off.

PCM Absolute Bond Index  is now spreading long high yield U.S. bonds against inverse (short) U.S. treasuries. The bond markets seemed to have stabilized from the May/June volatility as Bernanke assures the market that the printer is fired up as long as economic growth remains weak.

By: Melissa Wieder, CFP®, Director Institutional Services

Collaborative insight provided by Co-CIO’s Michael Chapman and Todd Wood

The views and strategies described herein are for illustrative purposes only and may not be suitable for all investors. The information is not based on any particularized financial situation, or need, and is not intended to be, and should not be construed as investment advice or a recommendation for any specific PCM or other strategy, product or service. Investors should consult their financial advisor prior to making an investment decision. There is no guarantee that these investment strategies will work under all market conditions and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. This material contains the current opinions of the author(s) but not necessarily those of PCM and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.  No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission.  Provident Capital Management, Inc, PCM and Absolute Return Index are trademarks or registered trademarks of Provident Capital Management, Inc., in the United States.©2013, PCM.


About "PCM Quant Coalescence"

Welcome to Provident's bi monthly "Quant Coalescence" communication. We suspect that many of you are no different than us. That is to say that when our quantitative models rebalance every 2 weeks for some indexes or once a month for other indexes, you sometimes find yourselves asking "What is behind a rotation into that ETF?" This communication is our opportunity to "unite for a common end" with our clients and partners; keeping you updated on our thoughts and perspectives.  As you know, our indexes are based on an absolute approach: we strive to make money in up markets or down markets, while trying to greatly minimize loss in any market environment.

Our indexes are also quantitative, reflective of our systematic, unbiased and technical approach. Since our indexes are unbiased, the quantitative models would obviously at times rotate into positions that cause us to scratch our heads. Nevertheless, being so close to the analysis as it unfolds, allows us to quickly begin to validate the fundamental reasons behind the quantitative "following of the money." At other times, the trades are not validated right away; the story unfolds as the days pass.  We have been very excited about many of these "validations" and "ah ha" moments. We had another "ah ha" moment when we decided that these insights would also be interesting to those who have entrusted us with their financial peace of mind.  Our goal is to be short and to the point, specific to what is happening in our indexes rather than a lengthy macroeconomic perspective.

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