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PCM Quant Coalescence, May 2013

Over the last few weeks, PCM’s Global Tactical Index has participated nicely in the broader market uptrend; being long U. S. defensive equities including healthcare, utilities and consumer staples.

The early May reallocation resulted in an exit from healthcare, an increase in exposure to utilities and high dividend payers, and a movement into consumer discretionary and pharmaceuticals. (see U. S. Industries Total Return) In addition, our global indexes moved out of U.S. equities and into New Zealand, Singapore and Japan. The bond exposure favors intermediate and long term maturities.

The metals remained 50% short gold, with the other 50% of that allocation going to the cash equivalent, as no other “metal” commodity ETF’s met the quantitative criteria required for inclusion.

Commodities continue to favor the softs, retaining cocoa, and moving out of natural gas (just before its substantial sell off last Thursday ) and into sugar.

A timely move in our U.S. Sector Index to the consumer discretionary sector proves, at least to us, that the market and “price” knows all. The consumer discretionary sector has been the strongest performing sector in this early May drive higher in U.S Equities.

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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