The latest fundamental research on US equities from MarketGrader, the quant-based stock indices behind ‘second generation’ Exchange Traded Funds (ETFs) from SPA ETF, has shown that the US market is largely over-sold following recent market volatility.

As a result, the turnover of stocks for the SPA ETF MarketGrader 100 been higher than normal, with a decrease in the allocation to the financial sector and a substantial increase in the allocation to industrial stocks and information technology stocks.

Neil Michael, head of quantitative strategies at SPA ETF Plc, comments: 'We feel that the SPA ETF MarketGrader 100 index has taken advantage of the buying opportunity in the largely over-sold US market and in the coming market rally, where cyclical stocks return to the lead and sectors that have been badly battered attract value-hunters, we expect the MarketGrader 100 index to perform well.

‘The MarketGrader 100 is overweight cyclical sectors, underweight defensive sectors and is therefore well positioned to take advantage of the recent fiscal stimulation package from the US treasury and the Federal Reserve interest rate cuts.’

This research has been produced as a part of the six monthly rebalancing of the MarketGrader 100, which is created by US research company MarketGrader.

MarketGrader has selected stocks that exhibit high growth characteristics (for example earnings growth) at relatively low price/equity ratios – in other words, growth at a reasonable price (GARP). Relative to the S&P500 the index is overweight energy, information technology, industrials and consumer discretionary; and underweight consumer staples, healthcare, and financials.

Michael says, ‘Following the six monthly rebalancing of the SPA ETF MarketGrader 100, based on our fundamental and equally weighted approach, our weighting for information technology and industrials has increased substantially. The SPA ETF MarketGrader 100 increased its position in information technology from 18.4 per cent to 23 per cent and increased its position in industrials from 8.2 per cent to 16 per cent. These sectors seem to offer fundamental attractiveness, based on earnings reported so far during the current earnings season, and will also benefit from the low dollar and low interest rates. In particular, stocks such as thestreet.com and Graham Corp represent great value.

‘In the financial sector, our weighting has decreased from 18.4 per cent to 13 per cent of the portfolio. Since the indiscriminate selling seen in the market from October we are finding many highly graded companies, based on MarketGrader’s fundamental approach, in many other sectors.’