Breadcrumbs

August, 2015: This is Getting Interesting

**Please note that the allocations mentioned in the following have been in place for a week, so the conservative/inverse stance was already on before the last few days of sell off. ***

Hopefully, many of you are reading this from the beach or the lake with an adult beverage or at least an iced tea close at hand. Before we begin, I want to provide a quick reminder that we have enhanced our website at https://www.pcminvestment.com. One of the main enhancements is that we now include performance for both our indexes and our composites, as applicable. Also new; you will be asked to enter your email address to get into the website. There will be no password required, so you won’t have to worry about forgetting it. This is partly due to helping us stay in compliance with requirements in our industry that we know who has reviewed our website content.


Now let's move on to the August quant analysis!

Greece has faded from the spotlight, as earnings in the U.S., speculation on the timing of the first Fed hike of interest rates in nine years and the devaluing of the Yuan in China are the focus. Puerto Rico officially defaulting on their debt in early August is the first time a U.S. Commonwealth has defaulted on its debt in history; not the type of recognition that any government entity wants. The situation in China continues to be volatile, as the Chinese central bank continues to take unprecedented actions to stabilize their markets including buying equities, backing brokerage firms’ margin lending with additional capital, and requiring that mutual funds and pensions only buy stocks (yes that is correct; no selling) for the remainder of the year. The regulators are demanding trading records from both Chinese and foreign firms to identify short sellers in particular, with the threat including arrest of individuals trying to profit from falling markets. The latest in their efforts to stabilize their markets and economy now include devaluing their currency, which is something that they have not done for many years. This has contributed to the increase in volatility in the last couple of weeks. Commodities worldwide also continue to sell off, breaking records on a daily basis for the biggest sell offs in decades. This supports the fear that China is slowing down and will impact economies worldwide. Credit spreads continue to widen and adds to the ominous overtones, as bonds generally recognize problems in the economy well before equities. Earnings season in the U.S. is winding down with slightly better than expected overall results, as reported by Factset:

  •  Of the 436 companies that have reported earnings to date for Q2 2015, 73% have reported earnings above the mean estimate and 51% have reported sales above the mean estimate.
  • For Q2 2015, the blended earnings decline is 1.0%. The last time the index reported a year­over­year decrease in earnings was Q3 2012 (­1.0%).
  • For Q3 2015, 56 companies have issued negative EPS guidance and 22 companies have issued positive EPS guidance.
  • The current 12­month forward P/E ratio is 15.7 today, down from 16.5 last week. This latter P/E ratio is based on an S&P closing price (2099.84) and forward 12­month EPS estimate ($127.40). The 15.7 is based on S&P at 2000 with the estimate the same.
  • Due to companies beating earnings estimates in aggregate, the blended (combines actual results for companies that have reported and estimated results for companies yet to report) earnings decline for Q2 2015 is now ­1.0%. This is a SMaller decline than the estimate of­ 4.6% at the end of the 2nd quarter (6/30).
  • This ­1.0% year over year decline is the first since Q3 2012, which was also a ­1.0% decline.
  • Consumer discretionary, healthcare and consumer staples are three of the top sectors reporting upside surprises for the quarter.



Despite earnings coming in at a negative year over year, earnings so far are beating estimates. Our August quant analysis picked up on this mixed message with the allocation very conservative to outright inverse in emerging markets and the Dow Jones Industrials. Healthcare and consumer staples are the only sectors that came up as common theme in the U.S. equity markets picking up on the upside earnings surprises. Nothing came up in the analysis as worthy of commitment in the emerging markets space except for India, which was balanced by an allocation to inverse emerging markets. PCM US Bond Total Return Index SM is allocated to inverse high yield corporates and along with PCM Absolute Bond Index SM both are allocated to long 20 year U.S. Treasuries and cash equivalents.

PCM Absolute U.S. Sector Index SM is in U.S. equities, with exposure to consumer discretionary, with the remaining allocation in cash equivalents. PCM U.S. Industries Total Return IndexSM is in cash equivalents, as well as U.S. software companies, insurance and consumer staples. The PCM Absolute Equity Income IndexSM remained in a heavy cash equivalent position with the remainder in U.S. preferred equities.

The August reallocation of the PCM Emerging Market Total Return Equity IndexSM is inverse emerging markets, long India and the remainder in cash equivalent. That index is up slightly month to date with emerging markets down over 13% as of this writing.

Long U.S. Treasuries and inverse U.S. and Asian equities are also represented in the PCM Total Return Portfolio IndexSM and PCM Stable Growth Plus+ Portfolio IndexSM. Both Indexes also hold the British pound. (Please note that performance numbers on the website for indexes do not include dividends and are appropriately calculated sequentially.)

The PCM Global Tactical IndexSM is in cash equivalents with some exposure to long equities in the way of consumer staples. The remaining allocation is in U.S. preferred stocks, inverse the Dow Jones and inverse Europe and Asia. The Global Macro IndexSM also has a heavy cash equivalent exposure. It too has what could be considered a dollar spread trade by being short emerging market equities and long U.S. equities and the U.S. dollar.

The PCM Alpha 1 IndexSM is invested in cash equivalents. The PCM Absolute Metals IndexSM has exposure to silver and to cash equivalent, while the PCM Absolute Commodities IndexSM remained in livestock and added cotton, which happens to be one of the only commodities going up as of this writing.

PCM Index Strategy composites have been recognized for performance by Informa Investment Solutions; most recently for the PCM Absolute Bond CompositeSM for the three year performance ending the 4th quarter of 2014, as well as previous awards for 1-year trailing performance and 3-year trailing performance. As of 2nd quarter 2014, the PCM Absolute Bond CompositeSM and the PCM Absolute Commodities CompositeSM both won a “Top Gun” award for performance in their respective category for the 1-year trailing performance period, with the PCM Absolute Bond CompositeSM also winning the “Top Gun” award for 3-year trailing performance. The PCM Alpha 1 CompositeSM was awarded the “Top Gun” performance award for the 1st quarter of 2014. We are very pleased to see these particular multi directional strategies being recognized, as the PCM Absolute Bond StrategySM and PCM Alpha 1 StrategySM are particularly timely for where we are in the current market cycle.

To view Morningstar Fact sheets of all of our index models, please visit our website at www.pcminvestment.com under the “PCM Multi DirectionalStrategies” tab.

By: Melissa Wieder, CFP®, Director Institutional Services

Collaborative insight provided by CIO Michael Chapman

 

Disclosure:

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.
Of the 436 companies that have reported earnings to date for Q2 2015, 73% have reported earnings above the mean estimate and 51% have reported sales above the mean estimate.
For Q2 2015, the blended earnings decline is 1.0%. The last time the index reported a year-over-year decrease in earnings was Q3 2012 (-1.0%).
For Q3 2015, 56 companies have issued negative EPS guidance and 22 companies have issued positive EPS guidance.
The current 12-month forward P/E ratio is 16.5. This P/E ratio is based on last Wednesday’s closing price (2099.84) and forward 12-month EPS estimate ($127.40).

Due to companies beating earnings estimates in aggregate, the blended (combines actual results for companies that have reported and estimated results for companies yet to report) earnings decline for Q2 2015 is now -1.0%. This is a SMaller decline than the estimate of- 4.6% at the end of the second quarter (June 30).
This -1.0% year over year decline is the first since Q3 2012, which was also a -1.0% decline.

Consumer discretionary, healthcare and consumer staples are three of the top sectors reporting upside surprises for the quarter.

July, 2015: Risk of Greek Exit from the Euro Increases Dramatically

Welcome back after a Happy and Safe Independence Day. Before we begin, I want to provide a quick reminder that we have enhanced our website at https://www.pcminvestment.com. One of the main enhancements is that we now include performance for both our indexes and our composites as applicable. Also new; you will be asked to enter your email address to get into the website. There will be no password required, so you won't have to worry about forgetting it. This is partly due to helping us stay in compliance with requirements in our industry that we know who has reviewed our website content. Now let's move on to the July quant analysis!
Greece continues in the spotlight, as yesterday's resounding referendum vote of "No" by the Greek voters added to the speculation that Greece could actually exit the Euro. The "No" vote was a "No" to more austerity measures. Many Greeks feel that the situation can't get any worse if they do exit, so why not push for debt write downs if they are going to stay? This resolve may fade in the coming days, as personal bills go unpaid and food and medicine become more scarce. Many analysts believe that Puerto Rico defaulting on their debt should be a bigger concern, however the markets don't seem to be focused on that. The situation in China is also going somewhat unnoticed in comparison to the coverage that Greece is receiving and in light of the extreme volatility Chinese investors are experiencing. After rising 150% in the last year as of mid-June, 2015, the Shanghai Index has dropped approximately 30% in the last 3 weeks. Perhaps more interesting than the substantial swings are the measures being taken to stabilize the markets. The Chinese central bank is doing everything from buying equities, to backing brokerage firms' margin lending with additional capital, to requiring that mutual funds and pensions only buy stocks (yes that is correct; no selling) for the remainder of the year. These are all unproven and highly unusual attempts to keep their equity markets from going into a panic selloff and as is always the case: Time will tell. Our July quant analysis picked up on this uncertainty as allocations to cash equivalent and inverse equity ETF's were both strong themes.
Both PCM US Bond Total Return Index sm and PCM Absolute Bond Index sm remain allocated to inverse 20 year U.S. Treasuries and cash equivalents.
PCM Absolute U.S. Sector Index sm is now inverse U.S. equities, while remaining long consumer discretionary equities. PCM U.S. Industries Total Return Indexsm is heavily weighted in cash equivalents with some exposure to food and beverage. The PCM Absolute Equity Income Indexsm remained in a heavy cash equivalent position with the remainder in an inverse real estate position. .
The July reallocation of the PCM Emerging Market Total Return Equity Indexsm remained in a heavy cash equivalent position.
Inverse U.S. Treasuries and inverse U.S. equities are also represented in the PCM Total Return Portfolio Indexsm and PCM Stable Growth Plus+ Portfolio Indexsm. Both Indexes also hold the British pound and exposure to commodities. (Please note that performance numbers on the website for indexes do not include dividends and are appropriately calculated sequentially.)
The PCM Global Tactical Indexsm is heavily in cash equivalents with some exposure to long equities in the way of consumer discretionary. The Euro and inverse gold are also represented for an interesting spread on the U.S. dollar. The Global Macro Indexsm is inverse 20 year U.S. Treasuries and also has a heavy cash equivalent exposure. It too has what could be considered a dollar spread trade by being short emerging market equities and long the Euro.
The PCM Alpha 1 Indexsm is long commodities. The PCM Absolute Metals Indexsm has exposure to inverse gold and to cash equivalent, while the PCM Absolute Commodities Indexsm moved into livestock while remaining in cocoa.
PCM Index Strategy composites have been recognized for performance by Informa Investment Solutions; most recently for the PCM Absolute Bond Compositesm for the three year performance ending the 4th quarter of 2014, as well as previous awards for 1-year trailing performance and 3-year trailing performance. As of 2nd quarter 2014, the PCM Absolute Bond Compositesm and the PCM Absolute Commodities Compositesm both won a "Top Gun" award for performance in their respective category for the 1-year trailing performance period, with the PCM Absolute Bond Compositesm also winning the "Top Gun" award for 3-year trailing performance. The PCM Alpha 1 Compositesm was awarded the "Top Gun" performance award for the 1st quarter of 2014. We are very pleased to see these particular multi directional strategies being recognized, as the PCM Absolute Bond Strategysm and PCM Alpha 1 Strategysm are particularly timely for where we are in the current market cycle.
To view Morningstar Fact sheets of all of our index models, please visit our website at www.pcminvestment.com under the "PCM Strategies" tab.

By: Melissa Wieder, CFP®, Director Institutional Services

Collaborative insight provided by CIO Michael Chapman

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.

May, 2015: Oil Up, Bonds Down and Equities Volatile

Happy Spring and welcome to better weather! Before we get into the May analysis, we would like to point out that we have enhanced our website at https://www.pcminvestment.com. One of the main enhancements is that we now include performance for both our indexes and our composites as applicable. Also new; you will be asked to enter your email address to get into the website. There will be no password required, so you won't have to worry about forgetting it. This is partly due to helping us stay in compliance with requirements in our industry that we know who has reviewed our website content. Now let's move on to the May quant analysis!


Bonds and commodities are in the spotlight, as oil rebounds over 45% off recent lows and government bond yields spike worldwide. Some analysts believe the spike in yields on longer term bonds is due to the spike in oil, as investors' fear of inflation kicks in. Other analysts see it as a sign that the situation in Greece may not be as contained as they hope and believe. With respect to commodity prices, they are rising in general as a result of the weakening U.S. dollar. The strength in the U.S. dollar was one factor widely cited as the reason earnings for the 1st quarter of 2015 were revised down almost 10% from late last year's expectations. Our May quant analysis picked up on these themes, as allocations to ETF's that track the inverse of bond prices and ETF's that track a basket of commodities are both represented in the allocation.

The PCM US Bond Total Return Indexsmpicked up on bond weakness, allocating 25% to inverse 20 year U.S. Treasuries. Another 25% remained in high yield corporates and the 50% remaining allocation went into cash equivalent. The PCM Absolute Bond Indexsmalso added exposure to inverse 20 year U.S. Treasuries with the remaining 50% in cash equivalent, as it picked up another "Top Gun" award for performance for the 3 year period ending 4th quarter of 2014 from Informa Investment Solutions.


PCM Absolute U.S. SectorIndexsmstayed long equities with exposure to financials, materials, and energy, as again the commodities theme remains strong. PCM U.S. Industries Total return Indexsmalso picked up materials and financials, as well as media and cash equivalent. The PCM Absolute Equity Income Indexsmrotated to international dividend payers, U.S. preferred stocks and the energy space.

The May reallocation of the PCM Emerging Market Total return Equity Indexsmis invested in the BRIC's, emerging Europe and cash equivalent.
Inverse U.S. Treasuries, materials, energy and commodities in general are all represented heavily in the PCM Total ReturnPortfolio Indexsmand PCM Stable Growth Plus+ Portfolio Indexsm. Both Indexes also hold the Canadian Dollar, which yet again is a commodity play with Canada's large export of oil. (Please note that performance numbers on the website for indexes do not include dividends and are appropriately calculated sequentially.)

The PCM Global Tactical Indexsm is long energy and Canadian equities, as well as having exposure to Austria and Singapore. ThePCM Global Macro Indexsmis long commoditiesnd Asia and inverse 20 year U.S. Treasuries.
The PCM Alpha 1 Indexsmcontinues the commodity theme, allocating to an ETF that tracks a basket of commodities. The PCM Absolute Metals Indexsmhas 50% exposure to industrial metals and 50% to nickel, while the remained 50% in cotton and rotated 50% into copper, as this index is seeing very substantial outperformance both last year and year to date vs its appropriate commodity index.
PCM Index Strategy composites have been recognized for performance by Informa Investment Solutions; most recently for the PCM Absolute Bond Compositesmfor the three year performance ending the 4th quarter of 2014, as well as previous awards for 1-year trailing performance and 3-year trailing performance. As of 2nd quarter 2014, the PCM Absolute Bond Compositesmand the PCM Absolute Commodities Compositesmboth won a "Top Gun" award for performance in their respective category for the 1-year trailing performance period, with the PCM Absolute Bond Compositesmalso winning the "Top Gun" award for 3-year trailing performance. The PCM Alpha 1 Compositesmwas awarded the "Top Gun" performance award for the 1st quarter of 2014. We are very pleased to see these particular multi directional strategies being recognized, as thePCM Absolute Bond Strategysm
and PCM Alpha 1 Strategysmare particularly timely for where we are in the current market cycle.


To view Morningstar Fact sheets of all of our index models, please visit our website at www.pcminvestment.com under the "PCM Strategies" tab.

By: Melissa Wieder, CFP®, Director Institutional Services
Collaborative insight provided by CIO Michael Chapman

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.

For further disclaimer and disclosures, see our website for index disclosures and composite disclosures.

June, 2015: Bond Yields Continue to Rise

Happy Friday and before we begin, I want to provide a quick reminder that we have enhanced our website at https://www.pcminvestment.com. One of the main enhancements is that we now include performance for both our indexes and our composites as applicable. Also new; you will be asked to enter your email address to get into the website. There will be no password required, so you won’t have to worry about forgetting it. This is partly due to helping us stay in compliance with requirements in our industry that we know who has reviewed our website content.

Now let's move on to the June quant analysis!

Greece has been in the spotlight, as today’s June 5th deadline for their payment to the IMF comes and goes. Greece was allowed to again buy some time by bundling the payment due today with the next payment due in a few weeks. Bonds worldwide are reacting to the continued uncertainty in Greece, as bonds sell off and yields go higher despite still being at historically very low levels. Some analysts also believe the spike in yields on longer term bonds is due to the spike in oil, as investors’ fear of inflation kicks in. Lastly, today’s job numbers were seen as strong and supportive of the Fed in raising rates sooner rather than later. This would be in line with the trend of good news being bad news. With respect to equities, the situation in Greece is making U.S. equities much more attractive than in Europe. Our June quant analysis picked up on these themes, as allocations to ETF’s that track the inverse of bond prices and ETF’s that track U. S. equities were both strong themes.

Both PCM US Bond Total Return Indexsm and PCM Absolute Bond Indexsm remain allocated to inverse 20 year U.S. Treasuries and high yield corporates. PCM Absolute U.S. Sector Indexsm stayed long equities with exposure to financials, healthcare and consumer discretionary. PCM U.S. Industries Total Return Indexsm picked up consumer staples and insurance, as well as remaining in media. The PCM Absolute Equity Income Indexsm rotated to a heavy cash equivalent position with the remainder in U.S. preferred stocks.

The June reallocation of the PCM Emerging Market Total Return Equity Indexsm also moved to heavy cash equivalent with a small position in emerging Asia.
Inverse U.S. Treasuries and long U.S. equities in general are all represented heavily in the PCM Total Return Portfolio Indexsm and PCM Stable Growth Plus+ Portfolio Indexsm. Both Indexes also hold the U.S. Dollar. (Please note that performance numbers on the website for indexes do not include dividends and are appropriately calculated sequentially.)
The PCM Global Tactical Indexsm is long equities in Switzerland and the U.S. with the focus on healthcare, financials and consumer discretionary. The Global Macro Indexsm is inverse 20 year U.S. Treasuries, long U.S. equities, long the U.S. dollar, and long emerging market bonds and high yield corporate bonds in the U.S.
The PCM Alpha 1 Indexsm continues the U. S. equity theme, allocating to an ETF that tracks the Russell 2000. The PCM Absolute Metals Indexsm has exposure to silver and to cash equivalent, while the PCM Absolute Commodities Indexsm moved into livestock and cocoa, as this index is seeing very substantial outperformance both last year and year to date vs its appropriate commodity index.
PCM Index Strategy composites have been recognized for performance by Informa Investment Solutions; most recently for the PCM Absolute Bond Compositesm for the three year performance ending the 4th quarter of 2014, as well as previous awards for 1-year trailing performance and 3-year trailing performance. As of 2nd quarter 2014, the PCM Absolute Bond Compositesm and the PCM Absolute Commodities Compositesm both won a “Top Gun” award for performance in their respective category for the 1-year trailing performance period, with the PCM Absolute Bond Compositesm also winning the “Top Gun” award for 3-year trailing performance. The PCM Alpha 1 Compositesm was awarded the “Top Gun” performance award for the 1st quarter of 2014. We are very pleased to see these particular multi directional strategies being recognized, as the PCM Absolute Bond Strategysm and PCM Alpha 1 Strategysm are particularly timely for where we are in the current market cycle.
To view Morningstar Fact sheets of all of our index models, please visit our website at www.pcminvestment.com under the “PCM Strategies” tab.

By: Melissa Wieder, CFP®, Director Institutional Services
Collaborative insight provided CIO Michael Chapman

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.

April, 2015: Earnings Season Kicks Off

March equities began the month just a fraction off of their all-time highs and closed down 1.74% for the month. This was after experiencing their best month in over 3 years in February, as measured by the S&P 500. Earnings season officially began after the market close on April 8th with Alcoa reporting. Alcoa is a company that was anticipated to benefit from the stronger dollar, as market watchers try to determine the impact of lower oil and a higher U. S. dollar on overall earnings. The following statistics and estimates are courtesy of John Butters, VP and Sr. Earnings Analyst at Factset:

Earnings Growth: For Q115, year-over-year earnings for the S&P 500 are projected to decline by 4.6%. If the index reports a year-over-year decline for the quarter, it will be the first time since Q3 2012 (-1.0%).

Earnings Revisions: On December 31, the estimated earnings growth rate for Q1 2015 was 4.3%. All ten sectors have lower growth rates today (compared to December 31) due to downward revisions to earnings estimates, led by the Energy sector.

Earnings Guidance: For Q1 2015, 85 companies have issued negative EPS guidance and 16 companies have issued positive EPS guidance.

Valuation: The current 12-month forward P/E ratio is 16.7. This P/E ratio is above the 5-year (13.7) average and the 10-year (14.1) average for the index.

Earnings Scorecard: Of the 19 companies that have reported earnings to date for Q1 2015, 16 have reported earnings above the mean estimate and 12 have reported sales above the mean estimate.

In reference to the last point above, investors should keep in mind that earnings have already been revised down throughout the quarter. Although earnings will be down year over year for only the second time in 6 years and the other time was more "unchanged" than substantially down, many companies will beat these lower revised earnings. The point here is....buyer beware of the full story.

Themes for our most recent quant analysis include long the U.S. dollar, international equities in Japan and Hong Kong, healthcare stocks in the U.S., U.S. Treasuries and cash equivalents. The PCM US Bond Index is spread across investment grade corporates and U.S Treasuries of varying maturities covering the short and the long end of the yield curve. The PCM Absolute Bond Index added exposure to the 20 year U.S. Treasury with the remainder in cash equivalent, as it picked up another "Top Gun" award for performance for the 3 year period ending 4th quarter of 2014 from Informa Investment Solutions. This was mistakenly reported as a quarterly award in the last newsletter, but was actually for the three year time period.
PCM Absolute U.S. Sectors continued the theme of U.S. healthcare equities and the remainder in cash equivalents. The PCM U.S. Industries Index is long internet, food and beverage and retail equities, with the remaining 25% in cash equivalents. Like the S&P 500, both of these indexes are just off of their all-time highs.

The April reallocation of the Emerging Market Equity Index is invested in Asian emerging markets, emerging market technology and cash equivalent.
Healthcare, Japan, Hong Kong, the U.S. dollar and cash equivalents are all represented in the PCM Total Return and Stable Growth Plus. (Please note that performance numbers on the website for indexes do not include dividends and are appropriately calculated sequentially.)
The PCM Global Tactical Index is long U.S preferred equities and healthcare, Japan, Hong Kong, and the 20 year U.S. Treasury.
The Alpha One Index is invested in 7-10 year U.S Treasuries. The PCM Absolute Metals Index has 50% exposure to copper and the remaining 50% allocation to silver, while PCM Commodities Index is 50% in silver and 50% in cash equivalent, as this index is seeing very substantial outperformance both last year and year to date vs its appropriate commodity index.
PCM Index Strategy composites have been recognized for performance by Informa Investment Solutions; most recently for the Absolute Bond composite for the 3 year timeframe ending the 4th quarter of 2014, as well as previous awards for 1-year trailing performance and 3-year trailing performance. As of 2nd quarter 2014, the PCM Absolute Bond strategy and the PCM Absolute Commodity strategy both won a "Top Gun" award for performance in their respective category for the 1-year trailing performance period, with the PCM Absolute Bond also winning the "Top Gun" award for 3-year trailing performance. The PCM Alpha 1 strategy was awarded the "Top Gun" performance award for the 1st quarter of 2014. We are very pleased to see these particular multi directional strategies being recognized, as the PCM Absolute Bond and PCM Alpha 1 are particularly timely for where we are in the current market cycle.

By: Melissa Wieder, CFP®, Director Institutional Services

Collaborative insight provided by CIO Michael Chapman


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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