The underlying index of the SPA Market Grader 100 (SIH) exchange traded fund (ETF) just got its semi-annual rebalance. The index is going marginally heavier in energy (from 23% to 25%) and lower in its financial weighting (13% to 5%).
Some might do a double-take, but Neil Michael, head of quantitative strategies at SPA, doesn’t see the heavier weighting in energy as too much of a bold move in light of the recent correction in oil prices. “We know oil prices have corrected, but they’re still historically very high,” he says.
When oil prices corrected in 2006, he points out, there was some underperformance of the index, “but the methodology still identified fundamental attractiveness, and it still paid off.”
Michael points out the the most significant change is the weighting in financials, due to the continued effects of the credit crunch.
“If you look at the actual stats for year-on-year earnings in the second quarter of this year, financials in the S&P were down more than 100%. It’s the worst performing sector in the S&P.”