Amidst Concerns About Financial Stocks, MarketGrader.com’s MG Financials Index Thrives

June 8, 2011 - PRLog -- Following the Federal Reserve’s announcement last Friday that some banks may be held to higher capital requirements that correspond with the bank’s importance to the financial system (MarketWatch), investors have been bearish on financial stocks, especially large cap banks. The impact of this announcement is evident in companies such as Citigroup (C), which dropped 4.5% on the trading day after this announcement.

Year to date the S&P 500 Financial Index, which underlies the popular XLF ETF is down 6.6% while MG Financials is up 2.5% in the same period. These are price-only returns of the indexes and exclude dividends or the costs of owning a fund or ETF. Over a longer period of time, MG Financials’ out performance is even more remarkable. Based on three-year price only cumulative returns, as of yesterday’s close, MG Financials has outperformed the S&P 500 Financials Index by more than 38 percentage points.

3-Year Price-Only Cumulative Returns:

MarketGrader Financials Index:   +2.53%
S&P 500 Financials Index:    -35.89%

While some of this performance can be attributed to the fact that MG Financials is equally weighted, and thus not overly exposed to the mega-cap banks that crashed during the 2008 financial crisis, a good deal of the performance is also owed to sound stock selection and a disciplined rebalance approach. A few examples of its constituents appear below.

How is the index constructed?

The MG Financials Index consists of the 40 highest rated financial stocks (based on fundamental analysis) on MarketGrader.com and is rebalanced quarterly, with the last shuffle having taken place at the end of May.

As of June 7, 2011, the 3 highest rated stocks on the MG Financial Index were:

Anally Capital Management (NLY)- rated 84.4/100
Chimera Investment Group (CIM)- rated 81.9/100
Ares Capital (ARCC)- rated 80/100

The 3 stocks in the index with the largest YTD gains are:

Encore Capital (ECPG)- up 37.87%
Cash America International (CSH)- up 34.23%
Credit Acceptance Corp (CACC)- up 21.91%

When using ETFGrader to compare the MG Financials to an ETF that tracks the returns of the S&P 500 Financial Index, such as SPDR Financial Select Fund (XLF) we can see how these gains are possible. The MG Financial Index has an average rating of 68.23, whereas XLF has an average rating of 52.9. This reflects the fact that the MarketGrader Index consists of fundamentally stronger companies, which is reflected in the returns of the two indexes.

About MarketGrader.com

MarketGrader.com is the creator of the Barron’s 400 Index and an independent stock research firm that covers 5,800 stocks listed in U.S. and Canadian exchanges. In addition to the Barron’s 400, the company publishes 14 proprietary indexes based on its fundamental selection methodology.