FSM models underwent their seasonal evaluations Monday evening with international equities headlining many of the changes.
February marks the first seasonal evaluations for the Fund Score Method (FSM) models. If you’re not familiar with the FSM model framework, a large majority of the models evaluate their holdings on a seasonal quarter basis with February, May, August, and November marking the start/end of each seasonal quarter. Each FSM model is built around a universe of ETFs or mutual funds with the highest scoring funds selected at each evaluation. If you want a deeper dive into the basics for FSM models, check out our Fund Score Method Model Guide. As we do during each evaluation season, we will cover the trades and themes to get insights into any shifts in market leadership. Whether or not one follows any of the FSM models, their evaluations give us important information.
To start, the FSM T Rowe Price 5S PR4050 made a flurry of trades with an emphasis on international equities. After swapping out four funds, the lineup now consists of all five funds having at least 20% of their underlying allocations in international equities. So, there’s been a major push into the global equity space with a strong mix of both US and ex-US equities. The four new funds include: T Rowe Price International Value Equity Fund (TRIGX), T Rowe Price New Era (PRMEX), T Rowe Price Overseas Stock (TROSX), and T Rowe Price Spectrum International Equity Fund (PSILX). The FSM American Funds 5S PR4050 model made similar changes with only two new funds coming into the current holdings, making all five holdings having a meaningful amount of exposure to international equities. This is the most international exposure either of the two most popular FSM mutual fund models have had since they went live nearly eight years ago.
Moving onto our CoreSolution suite of FSM models, it was a relatively quiet evaluation when compared to the mutual fund models. The FSM CoreSolution US Core 2S PR4050 model made no trades and continues to hold the Invesco QQQ Trust (QQQ) and the iShares MSCI USA Momentum Factor ETF (MTUM). On the other hand, the FSM CoreSolution All Cap World 2S PR405 model did make a trade to pick up more international exposure. The model sold the iShares Morningstar Growth ETF (ILCG) and bought the iShares MSCI Emerging Markets ETF (EEM). Overall, this evaluation period highlighted the continued strength in international equities that started last year. On our macro group rankings on the Asset Class Group Scores Page, the All Global and International group has its highest average score since the mid-2000s and its 4.47 score is beating the All US Equity group by 0.40 points. However, the S&P 500 Index Funds group is still ranked above All Global & Intl Diversified, so the large cap growth leadership is still in place despite international equities outcompeting small and mid-cap US by and large.
