Kathleen Moriarty, one of the pioneers of the ETF industry who helped create the inaugural U.S. exchange-traded fund 30 years ago, died at the all-too-young age of 69 on Tuesday, December 20. The cause of death was a pulmonary embolism with which she had battled for three days before succumbing.

Kathleen, a personal friend, was used to battles. With good friend Nate Most, she designed the unique find-trust structure and won a three-year battle with the SEC to make the SPDR S&P 500 ETF Trust, SPY, effective. Without that, MDY, the SPDR Midcap Trust, WEBS, iShares, and the rest would never have been born – shades of George Bailey. 

Kathleen also worked with me, the World Gold Council, State Street Global Advisors, and others to turn gold into a stock with GLD, the first solid asset, commodity, and currency Exchange-Traded Vehicle (ETV) all in one. ETV was the terminology Kathleen believed was most accurate and wrote an article about this. One common bond Kathleen and I shared is being compulsive about educating others. Nevertheless, the industry adopted the more sales-oriented exchange-traded products to differentiate these from true ETFs.This is much more accurate than calling and believing them to be ETFs, than being shocked when a different tax treatment and sometimes even a K-1 is received. Other innovations Kathleen worked on advocated for were the Global X Long-Short ETFs and actively managed fully transparent ETFs.She was a public advocate for delegated authority which finally came with the ETF Rule. Until the end, she was an innovator and advocate, beating the drum for an ETP that held Bitcoin. My final privilege in working with Kathleen was on an unprecedented product still in development. Again, she came up with recommendations that would both help us with regulatory discussions and be more efficient for fund shareholders. 

I cherish the moments I spent with Kathleen. As a fellow pioneer beginning a couple of years later, I will do my best to ensure that she is remembered and honored as a driving force bringing financial products that were not only ways for product sponsors to make money but that eventually made much lower cost and transparent investment products far more accessible and efficient for both professional and ordinary investors. She foresaw the ETF becoming an essential part of investor savings in everyday life. Her vision will be sorely missed.

Stock Analysis Inspired By a Special Gift of Alternative Data Signals

I have spent 40 years helping to develop, research and market quantitative investment products with new twists. The advent of alternative data including the use of web-gathered information had introduced new papers in that regard. This has led to published papers in refereed journals such as “Using Alternative Research Data in Real World Portfolios” using data I gathered from a four-year client named Brand Loyalties (http://www.brandloyalties.com). 

For nearly ten years, Brand Loyalties has produced data sets based upon luminosity (brightness) and relevance of daily website mentions of brands. The analytic techniques and exhaustively thorough mapping lexicon they have developed over the years were eye-opening to me during my research. Empirically and with several sources of outside verification, the data provided to an impressive host of hedge fund clients have outperformed all relevant indexes. They have also maintained live-on-website performance of many equally weighted thematic indices that have persistently outperformed the equivalent ETFs where such ETFs exist.

The reason I go into alternative data today is the President Tony Seker of Brand Loyalties has gifted us with the firm’s top picks for upcoming weeks. Below we unveil four of them with the reasons that Brand Loyalties selected them, then we provide the usual analysis from ValuEngine reports to compare the three along with a consumer ETF and a market ETF. 

The stocks in question are:

Anika Biosciences Inc. (ANIX) – a biotechnology company that develops diagnostics and therapeutics to detect cancer, ANIX revenue has been correlating strongly with Band Loyalties’ luminosity signals and looks strong leading into the next Earnings report, expected on 1-9-23. EPS has been in the red, but this may be a positive signal.

Cass Information Sciences (CASS) - a leading provider of payables services and information support systems to companies throughout North America. CASS has had a strong price correlation to BrandLoyalties luminosity signals and has recently moved into BUY territory using Brand Loyalties signals.

O'Reilly Automotive, Inc. (ORLY) is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States, serving both professional service providers and do-it-yourself customers. Became a Brand Loyalties BUY on 12-15. Strong price correlation. 

American Eagle Outfitters (AEO) is a specialty retailers a specialty retailer that provides clothing, accessories, and personal care products under the American Eagle and Aerie brands. Not yet in the top 10^th percentile needed to qualify as a Brand Loyalties BUY but showing steady improvement in luminosity, currently reaching the18th percentile. Next earnings come out on 2-28-23. Historically AEO has good price and revenue correlation.

Two benchmark ETFs are used for comparison:

Consumer Discretionary Select Sector SPDR Fund (XLY) - a modified market-cap-weighted portfolio of US large-cap consumer-discretionary stocks drawn exclusively from the S&P 500 Index.

iShares Core S&P 500 ETF (IVV) – a fully transparent S&P 500 Index ETF using a more flexible and efficient structure than SPY, resulting in a lower expense ratio and slightly higher returns derived from securities lending and dividend reinvestment.

_{* ETF Undervaluation # is the percentage of undervalued stocks, not a comparison with all other ETFs in our universe}

Analysis 

1. In addition to being at the top of the list of recommendations from Brand Loyalties, ANIX is the only one of the four stocks recommended as a 4 (Buy) rating from ValuEngine.ANIX tops the study on a performance basis looking forwards and backwards. The ValuEngine model projects it to return 8.7% in the next 12 months as compared with a -1.8% projection for S&P 500-based IVV.In the past 12 months, its price appreciation was 26.9% compared with -18.6% for the benchmark. ANIX has also been an excellent 5-year performer with a 14% price gain. IVV’s gain for the same period was below 9%. That said, ANIX is a very small cap biotech company dependent on its drug pipeline and FDA approvals. Its annual price volatility is the highest in the sample. Therefore, it is most suitable as a holding for aggressive accounts.

2. Swinging from one extreme of the sample to the other, O’Reilly Auto Parts is a member of the S&P 500 and the largest market cap stock in the sample at $52 Billion.ORLY has enjoyed significantly superior performance to the S&P 500 and its sector peers for a long time as shown throughout our performance table. It also has a superior price gain projection for the year ahead and the strongest forecasts in the sample for the 3- and 6-month periods. It rated a solid hold by ValuEngine with an underlying score that ranked it just below our threshold for a Buy signal.  ORLY’s recent BUY signal reinforces a generally positive outlook. Beyond market cap, ORLY is a more stable holding than ANIX in terms of below-average price volatility and Beta. However, it is not currently a stock for value managers. Our valuation model rates it more overvalued than 84% of the universe of stocks we cover. Its traditional valuation ratios are also high.

3. American Eagle Outfitters (AEO) is the only stock in our quartet that may be attractive to value managers. Income-oriented accounts may be enthralled by its generous dividend yield of nearly 5%. Its traditional valuation ratios, price/earnings, price/sales and price/book are all the lowest in the sample and considerably lower than those of both ETFs.As with many of the few surviving stocks of traditional retail brands, AEO has had pronounced swings in earnings and price change in both directions during the past five years. This is reflected in its very high Beta and price volatility. The VE price prediction model rates it a 2 (Sell) and our valuation model considers it overvalued despite the ratios. The notes from Brand Loyalties that it is early in its upward projection and traders can take as much time as they need in the next two or three weeks to try to pick an optimal window. 

4. Cass Information Systems (CASS) is a small cap technology company that has maintained excellent price and earnings momentum consistently over the next five years.  It also has below-average price volatility relative to its peers. Ratios indicate that CASS may be fully priced. We consider it a middle-of-the-pack hold.  

For traders and followers of this column, these signals gifted to us by Brand Loyalties represents an excellent chance to test alternative data in action.  Certainly, traditional and “quantamental” asset managers increasingly look for information not in traditional financial statements because most alternative data are not factored into current market pricing. This is the potential edge of utilizing such signals in an evolving industry.    

In the interim, I wish you a happy, healthy, and prosperous New Year!

More By This Author:

A Materials World?
Will Aerospace And Defense Stocks Continue To Flourish?
Potential Opportunities In Insurance Stocks/ETFs And Learning Company Stocks

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