SPLG: S&P 500 Dashboard For May

seekingalpha05-02

This monthly article series provides value and quality scores for all sectors in the S&P 500 index, and we look at SPDR® Portfolio S&P 500 ETF.Some sectors are undervalued relative to 11-year averages...

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It is also a top-down review of all funds tracking it. Among them, SPDR® Portfolio S&P 500 ETF (NYSEARCA:SPLG), launched in November 2005, is less popular than SPDR S&P 500 ETF Trust (SPY). However, it has a lower expense ratio (0.02% vs. 0.09%) and a lower share price, offering more flexibility to investors who can’t trade fractional shares, and also for position sizing in options trading. It has over $33B of assets under management and an average daily volume of $529M, which is enough to satisfy long-term investors and swing traders. SPLG pays quarterly dividends. Shortcut The next two paragraphs in italics describe the dashboard methodology. They are necessary for new readers to understand the metrics. If you are used to this series or if you are short of time, you can skip them and go to the charts. Base Metrics I calculate the median value of five fundamental ratios in every sector: Earnings Yield (\"EY\"), Sales Yield (\"SY\"), Free Cash Flow Yield (\"FY\"), Return on Equity (\"ROE\"), Gross Margin (\"GM\"). All are calculated on trailing 12 months. For all these ratios, higher is better and negative is bad. EY, SY and FY are medians of the inverse of Price/Earnings, Price/Sales and Price/Free Cash Flow. They are better for statistical studies than price-to-something ratios, which are unusable when the \"something\" is close to zero or negative (for example, companies with negative earnings). I also calculate two momentum metrics for each group: the median monthly return (RetM) and the median annual return (RetY). I prefer medians rather than averages because a median splits a set in a good half and a bad half. Capital-weighted averages are skewed by extreme values and the largest companies. As a consequence, these metrics are designed for stock-picking rather than index investing. Value and Quality Scores Historical baselines are calculated as the averages on a look-back period of 11 years for all metrics. They are noted respectively EYh, SYh, FYh, ROEh, GMh. For example, the value of EYh for technology in the table below is the 11-year average of the median Earnings Yield of S&P 500 tech companies. The Value Score \"VS\" is the average difference in % between the three valuation ratios (EY, SY, FY) and their baselines (EYh, SYh, FYh). The same way, the Quality Score \"QS\" is the average difference between the two quality ratios (ROE, GM) and their baselines (ROEh, GMh).  VS may be interpreted as the percentage of undervaluation or overvaluation relative to the baseline (positive is good, negative is bad). This interpretation must be taken with caution: the baseline is an arbitrary reference, not a supposed fair value. The formula assumes that the three valuation metrics are of equal importance, except in energy and utilities, where the Free Cash Flow Yield is ignored to avoid some inconsistencies. VS and QS are capped between -100 and +100 when the calculation goes beyond these values. Current data The next table shows the metrics and scores as of writing. Columns stand for all the data defined above.     VS QS EY SY FY ROE GM EYh SYh FYh ROEh GMh RetM RetY   All -10.64 5.85 0.0391 0.3619 0.0247 16.26 48.44 0.0430 0.4144 0.0275 15.17 46.35 -4.41% 11.80%   Cs. Discretionary -0.42 22.50 0.0440 0.5300 0.0355 30.29 38.05 0.0449 0.6401 0.0301 21.62 36.28 -7.50% 11.96%   Cs. Staples 3.80 -7.17 0.0459 0.5377 0.0184 20.19 40.40 0.0419 0.4707 0.0210 23.47 40.55 -0.52% -3.08%   Energy 100* 100* 0.0696 0.4399 0.0376 22.35 46.81 0.0243 0.5478 -0.0048 7.31 43.29 -0.36% 15.14%   Financials 14.39 7.05 0.0660 0.5377 0.0822 11.78 80.93 0.0685 0.4332 0.0670 11.15 74.65 -3.92% 23.28%   Healthcare -11.62 -10.14 0.0290 0.2889 0.0247 12.77 62.87 0.0343 0.2744 0.0328 15.84 63.43 -6.58% 0.12%   Industrials -28.96 1.91 0.0329 0.2827 0.0223 20.46 40.16 0.0435 0.5150 0.0270 21.32 37.23 -4.25% 20.25%   Technology -28.59 13.02 0.0287 0.1666 0.0239 28.13 62.75 0.0369 0.2551 0.0336 22.22 63.12 -5.57% 22.26%   Communication 19.44 -5.11 0.0451 0.7464 0.0421 14.31 56.27 0.0460 0.5280 0.0354 16.49 54.60 -8.18% 1.31%   Materials -0.08 -3.87 0.0443 0.6030 0.0232 16.18 36.09 0.0437 0.5976 0.0238 17.48 36.20 -5.40% 11.75%   Utilities -1.80 7.09 0.0534 0.4353 -0.0858 10.17 43.11 0.0493 0.4942 -0.0565 9.60 39.83 1.27% -1.18%   Real Estate 30.79 8.82 0.0330 0.1289 0.0101 8.08 64.83 0.0233 0.1147 0.0073 6.80 65.64 -2.45% 0.36%   Click to enlarge *capped for convenience. Score charts The next chart plots the Value and Quality Scores by sector (higher is better).   Value and quality in the S&P 500 (Chart: author; data: Portfolio123) Score variations since last month:   Variations in value and quality (Chart: author; data: Portfolio123) The next chart plots momentum scores based on median returns by sector.   Momentum in the S&P 500 (Chart: author; data: Portfolio123) Interpretation A hypothetical S&P 500 “median” company is overvalued by about 11% relative to historical averages since 2013. Its quality score is slightly above the historical baseline. We can translate median yields in their inverse ratios: Price/Earnings: 25.58 - Price/Sales: 2.76 - Price/Free Cash Flow: 40.49 Energy has been displaying the highest value and quality scores since February 2022. Real estate, communication services and financials are respectively undervalued by about 31%, 19% and 14% relative to 11-year averages. Consumer staples, consumer discretionary, materials and utilities are very close to their historical baselines in valuation. Additionally, consumer discretionary has a good quality score. Healthcare is moderately overvalued, whereas technology and industrials are overvalued by about 29% relative to the baseline. SPLG shows a total return of 22.7% in 12 months, while the median return of the S&P 500 is only 11.8% (reported in the table above) and the equal-weight average is at 13% (measured on RSP). It means the capital-weighted index performance has been skewed to the upside by the largest companies over the last 12 months. We use the table above to calculate value and quality scores. It may also be used in a stock-picking process to check how companies stand among their peers. For example, the EY column tells that a large consumer staples company with an Earnings Yield above 0.0459 (or price/earnings below 21.79) is in the better half of the sector regarding this metric. A Dashboard List is sent every month to Quantitative Risk & Value members, with the most profitable companies standing in the better half among their peers regarding the three valuation metrics at the same time. The stocks below are part of a list of 75 stocks sent to QRV members for May 2024.   Ticker Name Sector   MGM MGM Resorts International DISCRETIONARY   PBF PBF Energy, Inc. ENERGY   SYF Synchrony Financial FINANCIAL   COR Cencora, Inc. HEALTHCARE   LMT Lockheed Martin Corp. INDUSTRIAL   BG Bunge Global SA STAPLES   GEN Gen Digital Inc. TECH   DTE DTE Energy Co. UTIL   Click to enlarge  This is a part of a larger rotational model with a statistical bias toward excess returns on the long-term, not the result of individual stock analysis.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2432680339"}