Category: Your Money

Index Update 01.08.2015

stockviz August 1, 2015August 1, 2015

MOMENTUM

We run our proprietary momentum scoring algorithm on indices just like we do on stocks. You can use the momentum scores of sub-indices to get a sense for which sectors have the wind on their backs and those that are facing headwinds.

Traders can pick their longs in sectors with high short-term momentum and their shorts in sectors with low momentum. Investors can use the longer lookback scores to position themselves using our re-factored index Themes.

You can see how the momentum algorithm has performed on individual stocks here.

Here are the best and the worst sub-indices:

Relative Strength Spread

Refactored Index Performance

50-day performance, from May 25, 2015 through July 31, 2015:

Equally Weighted		Market Cap. Weighted
CNX PHARMA (EQUAL)	+19.59%	CNX MEDIA (CAP)	+16.92%
CNX MEDIA (EQUAL)	+15.49%	CNX CONSUMPTION (CAP)	+7.13%
CNX FMCG (EQUAL)	+8.37%	CNX FMCG (CAP)	+6.03%
CNX CONSUMPTION (EQUAL)	+6.70%	CNX MNC (CAP)	+5.64%
CNX MNC (EQUAL)	+5.13%	CNX PHARMA (CAP)	+4.62%
CNX AUTO (EQUAL)	+3.69%	CNX INFRA (CAP)	+4.34%
CNX FINANCE (EQUAL)	+3.20%	CNX FINANCE (CAP)	+3.13%
NI15 (EQUAL)	+3.17%	NI15 (CAP)	+2.42%
NSE QUALITY 30 (EQUAL)	+2.91%	CNX SERVICE (CAP)	+2.35%
CPSE INDEX (EQUAL)	+2.40%	CNX ENERGY (CAP)	+2.29%
CNX PSE (EQUAL)	+1.00%	CNX BANK (CAP)	+2.13%
CNX SERVICE (EQUAL)	+0.79%	NV20 (CAP)	+1.85%
NV20 (EQUAL)	+0.41%	NSE QUALITY 30 (CAP)	+1.14%
CNX ENERGY (EQUAL)	-1.07%	CNX PSE (CAP)	+1.14%
CNX BANK (EQUAL)	-1.07%	CNX IT (CAP)	+0.39%
CNX INFRA (EQUAL)	-1.24%	CNX COMMODITIES (CAP)	+0.10%
CNX IT (EQUAL)	-1.71%	CNX AUTO (CAP)	-0.36%
CNX COMMODITIES (EQUAL)	-3.20%	CNX PSU BANK (CAP)	-2.11%
CNX PSU BANK (EQUAL)	-6.27%	CPSE INDEX (CAP)	-2.61%
LIX 15 (EQUAL)	-6.47%	LIX 15 (CAP)	-7.12%
CNX REALTY (EQUAL)	-10.17%	LIX15 Midcap (CAP)	-11.45%
LIX15 Midcap (EQUAL)	-11.63%	CNX METAL (CAP)	-11.67%
CNX METAL (EQUAL)	-12.90%	CNX REALTY (CAP)	-12.45%

Trend Model Summary

Index	Signal	% From Peak	Day of Peak
CNX AUTO	SHORT	6.10	2015-Jan-27
CNX BANK	SHORT	8.88	2015-Jan-27
CNX COMMODITIES	SHORT	29.07	2008-Jan-04
CNX CONSUMPTION	SHORT	0.00	2015-Jul-31
CNX ENERGY	LONG	27.48	2008-Jan-14
CNX FMCG	SHORT	6.17	2015-Feb-25
CNX INFRA	LONG	47.33	2008-Jan-09
CNX IT	SHORT	87.86	2000-Feb-21
CNX MEDIA	SHORT	16.68	2008-Jan-04
CNX METAL	LONG	61.25	2008-Jan-04
CNX MNC	SHORT	0.00	2015-Jul-31
CNX NIFTY	SHORT	5.15	2015-Mar-03
CNX PHARMA	LONG	10.69	2015-Apr-08
CNX PSE	LONG	24.77	2008-Jan-04
CNX PSU BANK	SHORT	36.53	2010-Nov-05
CNX REALTY	LONG	90.60	2008-Jan-14
CNX SERVICE	SHORT	6.10	2015-Mar-03

Relative strength spread shot through its long-term median – good for momentum strategies.
CONSUMPTION and MNC indices recovered from their drawdowns. Will NIFTY be next?

Categories Your Money Tags index, momentum, weekly

Correlation Update 01.08.2015

stockviz August 1, 2015August 1, 2015

Nifty one year daily return correlations

Nifty one month daily return correlations

Bank Nifty one year daily return correlations

Bank Nifty one month daily return correlations

Midcap one year daily return correlations

Midcap one month daily return correlations

A lot of thick blue squares mean that positive correlations are high. Red squares mean negative correlations are high. Whites are the doldrums.

Categories Your Money Tags correlation, weekly

Profiting from PE Ratio Obsession

shyam July 26, 2015

Background

We are not big fans of using the Price-to-Earnings ratio. We saw how funds that use the market PE to time the market are no better than a buy-and-hold strategy (sometimes B&H performs better,) and we followed that up with how every single “ratio” has a caveat. And PE is the dumbest of them all.

However, if a large group of market participants pay attention to single flawed metric, then there should be a profitable arbitrage strategy that exploits that anomaly?

Exploiting PE obsession

Researchers in the US figured out a way to do just that.

Active investors with limited attention and capital constraints use fundamental metrics to screen and sort potential investments. Price-earnings (P/E) ratios are extremely popular, and are typically calculated using four trailing quarters of net income. Changes in the rankings of published P/E ratios may influence investor attention and subsequent excess returns. From 1974-2013, decile long-short portfolios formed on characteristics of P/E rankings which are rebalanced monthly earn value-weighted monthly excess returns of 101 basis points with annual Sharpe ratios of 0.79. Decile long-short portfolios which are rebalanced daily earn value-weighted daily excess returns of 16.99 basis points with annual Sharpe ratios of 2.91. Excess returns are robust to size, value, profitability, investment, price momentum, earnings momentum, short-term reversals, and relative volume. Changes to a stock’s P/E ranking predicts excess returns even when the stock’s P/E ratio itself does not change. The return premium cannot be explained by fundamental risk, clustering of attention at round number P/E ratios, or autocorrelation in the regressors.

We haven’t tested this for the Indian market yet. But this is just too cool not to share!

Paper: Rankings of published price-earnings ratios and investor attention

Categories Investing Insight, Your Money Tags investing, quant

Weekly Recap: Roller Coaster Investing

shyam July 25, 2015July 25, 2015

world.2015-07-17.2015-07-24

Equities

Major
DAX(DEU)	-2.79%
CAC(FRA)	-1.31%
UKX(GBR)	-2.88%
NKY(JPN)	-0.52%
SPX(USA)	-2.03%

MINTs
JCI(IDN)	-0.27%
INMEX(MEX)	-2.26%
NGSEINDX(NGA)	+0.14%
XU030(TUR)	-4.70%

BRICS
IBOV(BRA)	-6.06%
SHCOMP(CHN)	+2.87%
NIFTY(IND)	-1.03%
INDEXCF(RUS)	-3.30%
TOP40(ZAF)	-2.54%

Commodities

Energy
Ethanol	-4.06%
RBOB Gasoline	-4.46%
Brent Crude Oil	-4.02%
Heating Oil	-1.74%
WTI Crude Oil	-5.35%
Natural Gas	-2.77%

Metals
Gold 100oz	-3.05%
Palladium	+1.49%
Platinum	-1.18%
Silver 5000oz	-1.35%
Copper	-4.80%

Currencies

USDEUR:-1.16% USDJPY:-0.19%

MINTs
USDIDR(IDN)	+0.70%
USDMXN(MEX)	+2.26%
USDNGN(NGA)	-0.03%
USDTRY(TUR)	+3.28%

BRICS
USDBRL(BRA)	+4.95%
USDCNY(CHN)	+0.00%
USDINR(IND)	+0.90%
USDRUB(RUS)	+2.83%
USDZAR(ZAF)	+2.53%

Agricultural
Coffee (Arabica)	-4.47%
Coffee (Robusta)	-0.56%
Corn	-6.67%
Cotton	+0.03%
Wheat	-7.62%
White Sugar	-3.08%
Orange Juice	+2.83%
Feeder Cattle	-2.46%
Cattle	-2.62%
Cocoa	-3.88%
Lean Hogs	+2.41%
Lumber	-4.10%
Soybean Meal	-1.83%
Soybeans	-2.34%
Sugar #11	-5.94%

Credit Indices

Index	Change
Markit CDX EM	-0.39%
Markit CDX NA HY	-0.72%
Markit CDX NA IG	+3.51%
Markit iTraxx Asia ex-Japan IG	-0.56%
Markit iTraxx Australia	-2.39%
Markit iTraxx Europe	-0.14%
Markit iTraxx Europe Crossover	+7.87%
Markit iTraxx Japan	-1.57%
Markit iTraxx SovX Western Europe	+1.59%
Markit LCDX (Loan CDS)	+0.00%
Markit MCDX (Municipal CDS)	+0.01%

An uneasy week that saw most indices weak. The entire commodity complex came crashing down. Gold, copper, silver, oil, grains… pretty much every commodity was down.

Nifty Heatmap

Index Returns

For a deeper dive into indices, check out our weekly Index Update.

Sector Performance

Market Cap Decile Performance

Decile	Mkt. Cap.	Adv/Decl
1 (micro)	-1.58%	73/62
2	+0.74%	69/66
3	+8.28%	69/66
4	-0.03%	71/63
5	+1.95%	70/66
6	+0.73%	65/70
7	+0.40%	72/63
8	+1.34%	70/65
9	-0.35%	63/72
10 (mega)	+0.01%	70/65

Looks like there was an outlier that bumped up a microcap stock…

Top Winners and Losers

INFY	+8.56%
ABIRLANUVO	+8.56%
IBULHSGFIN	+8.86%
LUPIN	-15.25%
SUNPHARMA	-11.76%
CONCOR	-11.74%

Sunpharma’s warning, Lupin’s disappointment and Infy’s optimism…

ETF Performance

INFRABEES	+1.50%
JUNIORBEES	-0.66%
NIFTYBEES	-1.12%
CPSEETF	-2.56%
PSUBNKBEES	-2.76%
BANKBEES	-2.94%
GOLDBEES	-3.13%

Gold got shellacked…

Yield Curve

Bond Indices

Sub Index	Change in YTM	Total Return(%)
0 5	+0.02	+0.12%
5 10	-0.04	+0.35%
10 15	-0.01	+0.22%
15 20	-0.02	+0.34%
20 30	-0.02	+0.36%

The long end of the curve was in the green after a long time…

Investment Theme Performance

Quality to Price	+3.77%
Magic Formula	+1.09%
Financial Strength Value	+0.58%
Balance Sheet Strength	-0.21%
Momentum	-0.34%
Tactical CNX 100	-0.89%
High Beta	-1.31%
Next Trillion	-1.68%
ASK Life	-1.68%
CNX 100 Enterprise Yield	-1.76%
PPFAS Long Term Value	-1.91%
ADAG stocks	-1.97%
Low Volatility	-3.38%
The RBI Restricted List	-5.15%

A mixed bag. Momentum ended flat as Kitex got whacked…

Equity Mutual Funds

Best
HSBC Midcap Equity Fund – Growth	+1.67%
Reliance Mid & Small Cap Fund -Growth Plan -Growth Option	+0.80%
Birla Sun Life India Opportunities Fund – Growth – Regular Plan	+0.72%
Quantum Long-Term Equity Fund-Growth Option	+0.69%
Religare Invesco Contra Fund – Growth	+0.68%
Quantum Tax Saving Fund – Growth Option	+0.67%
Sundaram S.M.I.L.E.Fund-iNST Growth	+0.58%

Worst
IDFC Equity Fund -Plan B-Growth	-1.87%
Baroda Pioneer PSU Equity Fund- Plan A – Growth Option	-1.96%
Taurus Infrastructure Fund -Growth Option	-2.28%
DWS Global Agribusiness Fund – Growth	-2.34%
Reliance Tax Saver (ELSS) Fund-Growth Plan-Growth Option	-2.36%
Mirae Asset Global Commodity Stocks – Growth Option	-2.62%
Principal Global Opportunities Fund-Growth Option	-2.66%

Bond Mutual Funds

Best
Sundaram Flexible Fund -Flexible Income Plan Regular – Growth	+0.43%
SBI INFLATION INDEXED BOND FUND – REGULAR PLAN – GROWTH	+0.40%
DWS Inflation Indexed Bond Fund- Regular Plan- Growth	+0.38%
ICICI Prudential Short Term Gilt Fund – Regular Plan – Growth	+0.34%
HDFC Inflation Indexed Bond Fund – Regular Growth	+0.33%
L&T Resurgent India Corporate Bond Fund – Growth Option	+0.32%
ICICI Prudential Income Opportunities Fund – Regular Plan – Growth	+0.31%

Worst
IDBI Dynamic Bond Fund Growth	+0.08%
BNP PARIBAS Flexi Debt Fund-Regular Plan A – Growth Option	+0.08%
DSP BlackRock Constant Maturity 10Y G-Sec Fund – Regular Plan – Growth	+0.08%
ICICI Prudential Constant Maturity Gilt Fund – Regular Plan – Growth	+0.08%
BNP Paribas Flexi Debt Fund Growth Option	+0.08%
DSP BlackRock Government Securities Fund – Regular Plan – Growth	+0.06%
IIFL Dynamic Bond Fund – Regular Plan – Growth Option	+0.05%

Thought for the weekend

Big money is in buying and holding great businesses acquired at reasonable valuations. Owning such businesses will produce gut-wrenching roller coaster rides which the investor has to have the willingness to take. They can’t avoid those rides by jumping out and trying to get back in, and attempts to do so are likely to be unsuccessful. So, the best strategy is to stay put and bear it.

Source: Sanjay Bakshi

Categories Your Money Tags weekly

Index Update 25.07.2015

stockviz July 25, 2015July 25, 2015