FSM models underwent their seasonal evaluations this week with a few key themes worth watching.
It’s that time of the year again, seasonal evaluations and trades for FSM models took place Tuesday. The last seasonal evaluation took place in early May on the heels of a volatile March and April for domestic equities. Many FSM models picked up more defensive and international equity exposure but as the domestic market improved over the last few months, this evaluation saw FSM models go back to the domestic equity market, particularly in the large cap growth space. For the most part, the rotation out international equities in favor of domestic equities was not as much due to weak international performance but the overwhelming strength of domestic equities. Highlighting this point, the All Global and International Diversified group has an average group score of 4.20 while the S&P 500 Index Funds Group has an average score of 4.92. Both groups hold strong average group scores and are respectable options currently.
Digging into exact model trades, the FSM T Rowe Price 5S PR4050 model made three trades. Going into the August evaluation, the model had three of its five holdings centered around international equity exposure. Two of the three international focused funds were sold, T. Rowe Price International Equity Index (PIEQX) and T. Rowe Price Overseas Stock (TROSX), with the three new holdings centered around large cap domestic equities. Within the new lineup, there is one purely international fund, T. Rowe Price International Value Equity Fund (TRIGX), left. Looking at sector exposure, the model is now centered around technology and financials which are both highly ranked sectors on our asset allocation tools.
Moving on to an ETF focused model, the FSM CoreSoultion US Core 2S PR4050 model made a change to one of its two holdings. During its last evaluation in May, the model picked up low volatility exposure to complement its large cap momentum holding, the iShares USA MSCI Momentum ETF (MTUM), which was an interesting combination at the time. As investors became more risk-on over the last few months this led the model to sell out of the Invesco S&P 500 Low Volatility ETF (SPLV) in favor of the Invesco QQQ Trust (QQQ) in August. With the combination of QQQ and MTUM, the US Core model is in aggressive posture for the rest of the year. As mentioned earlier, there were quite a few changes this quarter as the market is in much better technical standing than it was during the last evaluation period in May. The underlying key to success for any of our models, including FSM models, is continually shifting to find the areas within the market with the highest relative strength and they have done that this seasonal evaluation.
