The following are observations of PCM’s April 1, 2013 rebalance of our quantitative indexes.

As events continue to get more interesting and final outcomes more uncertain in Cyprus and ultimately the EU, the European trade appears to be “risk off” for now.  Our indexes have demonstrated a decisive and continued move to defensive U.S. equities, specifically healthcare, utilities, consumer staples and high dividend paying stocks. The currency index rotated to the Canadian dollar, although the US dollar remains strong as evidenced by its continued 20% allocation to the PCM Global Macro Index.  All of these allocations support a theme of “risk off”, as implied by a flight to the US and Canadian dollar, out of the Euro and Euro denominated markets, and into the U.S. markets albeit a conservative stance;  which would appear to merely represent the proverbial “cleanest dirty shirt". Once again, we reap the benefits of being the global reserve currency.  

Along with the S&P 500’s “all-time high” milestone, many of PCM’s indexes also achieved the same on March 28th, including the PCM Global Tactical Index and the PCM Alpha One Index . Most of our models are multi-asset class and multi- directional, making a comparison to the S&P 500 an “apples to oranges” comparison.  However, since benchmarking is a hard habit to break, it is noteworthy that two of our 22 indexes that are appropriately benchmarked to the S&P 500 index would be our U.S. Sector Index and U.S. Industries Index.  Both have moved to new all- time highs.

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.

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