IQS Report for May 2010

IQS Report May2010.pdf

Commentary from our May 2010 Report

• The IQS model was up 2.39% for the 5 weeks ending May 29, while the sector-neutral model was up 2.12%. Year-to-Date, the IQS model is down 3.38%. IQS top decile of stocks has returned 4.2% YTD, while (according to the WSJ) the DJIA has returned -2.8% YTD, S&P 500 has returned -2.3% YTD, and The Total Stock Market has returned -.8% YTD.
• Factor categories that added to performance were led by Improving Financials, then Sentiment and Value. Balance Sheet slightly underperformed along with Momentum.
• All categories had positive Decile 1-10 spreads in at least 3 of the 5 weeks of May.

IQS 1000
• The IQS 1000 model was up 2.31% for the 5 weeks ending May 27, and up .73% YTD. IQS top decile of stocks has returned .54% YTD.

Random Insights
• YTD, the IQS models are performing well in the top decile, but underperforming in the bottom decile. In fact, the top decile has outperformed deciles 2 through 9.
• Since the 4th quarter in 2008 when the VIX peaked above 80, the VIX has been trending downwards breaking through the 20 barrier to below 16 for a short while. Recently, the VIX has climbed back to above 40 and is currently trending down towards 30 at the time of this writing. We expect the VIX to keep experiencing this “jumpiness” where it responds to financial/political uncertainty with a short-time spike in the VIX. Don’t expect the VIX to stay below 20 for a sustained period anytime soon.
• Small caps performance continues to dominate large caps. This will end, and large caps will have their turn.

Factor Weights
The IQS Weighting Scheme:
• Momentum weight has been increasing, after dropping to 0% in 2009, and is now in the moderate range.
• The MEI’s that have affected the factor weights this month include the movements in the VIX and the run up in the market (until the recent sell-off).