ETF Chart of the Day: Strategic Beta Power

Even with the SPX back to the 2000 level faster than you can say “buy the dip”, and even more interestingly before the expected FOMC rate decision today thanks to yesterday’s announcement of a “stealth QE” program in China intraday during U.S. hours, we continue to hear rhetoric on the street about stock prices being justified given current healthy fundamentals and a strengthening, not weakening economy.

If this is the case, we must wonder why the “big” rallies in 2014, yesterday for instance always seem to be linked to Fed comments regarding QE, and the indefinite continuation of such stimulus, or in some cases QE programs of other countries, notably in Asian economies with the most recent example coming yesterday out of China.

Interestingly, we commented on FXI (iShares China Large Cap, Expense Ratio 0.73%) just yesterday morning breaching the important $40 level ($39.89 intraday low yesterday) in early U.S. trading, only to reverse forcefully and almost in an exaggerated manner if one looks at yesterday’s sloppy intraday chart in FXI (note FXI is down today in early trading).

It is no secret that poor economic data has been filtering through China the past several days if not weeks, and it rippled through Chinese based stocks hitting the Shanghai Composite down to basically 6 month lows, before yesterday’s QE induced “take ‘em and bid ‘em’”, unabated rally.

“But fundamentals are justified at these levels” many will say, and if “fundamentals” it is that is behind these strange global equity rallies, then we will fall on our sword and stick to “fundamentals” today.

Quickly focusing on a firm known for their differentiated approach that directly began to challenge “market-cap weighted” indexing some 9-10+ years ago, RAFI (Research Affiliates) is a Newport Beach, CA based firm headed by the well-known Rob Arnott.

PRF (PowerShares FTSE RAFI U.S. 1000 Portfolio, Expense Ratio 0.39%) is the firm’s flagship fund, having debuted in late 2005.

After a slow initial start, the fund has gathered a notable $3.8 billion in assets under management up until this point, and the 136,000 shares traded daily suggests that many are using it as a longer term “hold” as opposed to a shorter term trading vehicle
within portfolios, and given the fundamental nature of the index methodology, this makes a great deal of sense.