What was the S&P 500 Total Return for 2014?

Jan 04, 2015

Total return measures capital appreciation AND the return associated with dividends (and any other distributions -- such as capital gains distributions). It is always surprising how many emails we receive saying our numbers are incorrect because people compare one price to another price. That is INCORRECT. The correct TOTAL RETURN for 2014 for SPY was +13.5%, not 11%. Total return in 2014 was +2.3% higher than the price return. (There is no actual such thing as a 'price-only S&P' -- the S&P index price only exists as an index, NOT as an investable fund -- nobody would be so stupid as to buy a fund that doesn't pay out its earned dividends). For ETF's with higher yields -- (and/or for those with cap gains distributions) -- this difference will obviously be higher.

Over a few years, this difference really adds up to be a VERY substantial amount.

 

 

 

 

 

 

 

Click for link to free Total Return vs Price Return Page

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Using Different Weightings Based On Rank In an ETF Relative Strength Backtest

Dec 11, 2014

 

User Question:

I run a portfolio relative strength backtest with 5 ETF but all are assigned an equal weight of 20%. How can I assign different weights to the ranked ETFs? Example: Top 5 Weighted as 30%, 30%, 20%, 10%, 10% respectively."

Answer:

For this you would use the Advanced Relative Strength Backtest Module (subscriber link).

By layering the strategies using different numbers of selections while at the same time using the same ETF list, you can create weightings based on Rank.

Note that the top ranked security in this portfolio list would receive 10% from portfolio 1, 10% from portfolio 2 and 10% from portfolio 3. The backtest report combines weights and it becomes simply 30% for the top ranked ETF. The backtest will appropriately rotate the 30% weight to the top ranked security and likewise for the other ETFs. Dive into the backtest report to see all the breakdown of sub-periods and the weightings of each ETF and its contribution to return for that period.

 

 

 

 

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Updated Robo Adviser 13F Performance

Nov 02, 2014

 

One of the more entertaining things we've read about is how Robo advisers have some type of special algorithm for asset allocation.   This is nonsense.   As you can see from the chart below, using the 13F SEC filed holdings of a major Robo Adviser,  the return path is essentially identical to another popular allocation fund in our database.    These funds all are using the same basic asset allocation --- the line about having a special algorithm is just for marketing purposes.

Note that the Robo 13F portfolio has not included the adviser fees -- but does include the underlying fund fees.   Subtract the adviser fee from the 13F return to get the adjusted figure.

 

 

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Robo Advisor Performance Using 13F Holdings

Oct 03, 2014 Follow us on Follow etfreplay on Twitter

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Welcome to Mutual Funds: Janus Unconstrained Bond Class A vs Class C Shares

Sep 29, 2014

 

We wonder how many investors possibly understand this extremely simple concept.   ETFs do NOT HAVE SHARE CLASSES.   Mutual funds have share classes for one reason -- to make more fees for the fund company and brokers.

Below is image highlighting the tradeoff in 2 classes of Janus Unconstrained Bond Fund.    Bill Gross the manager just manages one large sum and probably doesn't even look to see which share class has the assets --- it doesn't matter to him, he just buys and sells bonds for the aggregate portfolio.   But for investors,  the fund is divided into segments.

In this case,  you could go with Class A shares which have a 4.75% sales front load fee and an expense ratio of 1.08%.    Or you could buy Class C shares and pay no front load --- but pay a 1.83% expense ratio  and owe 1.00% as a back load --- when you sell it you are stuck an extra 1%.

Now think about it from a brokers perspective.   Which do you want your clients to buy?   If you have incentives to push load funds,  perhaps you stick your clients with the A shares because your firm gets that juicy 4.75% upfront fee.     However,  note the 12b1 fees.   Class A has a 0.25% 12b1  and Class C has a 1.00% 12b1 fee.    What is a 12b1 fee?   It's an ongoing kickback from the fund company to any outside broker who puts their clients in that fund.   So for example,  you are a broker that works for a company that is not Janus --- Janus will pay you an ongoing fee forever to keep your clients in it.    That fee is IN ADDITION TO whatever management fee you charge your clients.   The great part about 12b1's is that they are hidden! 

Do ETFs have 12b1 fees?   Nope.     So doesn't that make you wonder, why would a broker ever put a client in an ETF when they can earn 1.00% forever from Janus?  The problem with those silly ETFs is that how do you make any money off them?     Exactly.     This is the very essence of the problem.     Yet ETF assets continue to grow and grow and grow.  How is that?   Because many investment advisors are content with simply charging a straightforward fee and do the right thing and don't buy fees with loads and 12b1's.     Fees like 12b1 fees have been totally outlawed in other countries as too much of a conflict of interest.   But not in the USA.   

That all said,  Janus C shares might be a RELATIVE bargain compared to many hedge funds.    Happy investing.

 

 

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CFA Curriculum Type of Blog Post: Reward vs Risk

Jul 02, 2014

When you study finance, you have to first learn the basic fundamentals of portfolio theory. When you eventually move to real life, you quickly realize how theory is only a starting point. Nevertheless, it is useful to know the "book theory" because it provides something of a very basic framework. That said, in the words of the great investor Mike Tyson "Everyone has a plan 'till they get punched in the mouth." First, here is the look of a list of ETFs that climb up the risk curve.

 

 

Note that this was posted on this given date covering this very specific time period. Using those precise assumptions, the book theory held up nearly perfectly -- a line going from lower left to upper right --- more return for more risk. But you have to remember --- that was using some very careful selections. Here is an example of a different time period where equity investors were punched in the mouth, Tyson-style:

 

The point is that the volatile ETFs that are towards the right side of the chart will be the ones to have large intermediate-term drawdowns and large intermediate-term returns.     The ETFs on the left side will have low drawdowns and low returns.     These are very generic ETFs.    Where this gets much more interesting is when you use other ETFs that track more interesting indices.

 

Watch our backtesting videos here:

 

ETFreplay Backtesting Videos

 

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Financials Sector Earnings Per Share

Jul 01, 2014

 

A look at Financial Sector Earnings. 

 

 

 

 

Understand the ETFreplay Backtesting Layout Here:

ETFreplay Backtesting Layout Video

 

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Country Funds vs Their Moving Averages

Jun 21, 2014 in Regions

It was interesting to read bearish stories in March and April given that the Global Market was at that very moment IMPROVING.    While U.S. has been in an unbroken bull market,  you can see how there may be better opportunities for new leadership elsewhere....

 

 

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ETFreplay Top 100 Trillion Dollar Real-Money Portfolio Update

Jan 12, 2014 in ETF Multi-Asset 100

ETF investors in the top 100 exchange-traded products made +$136 billion in 2013.  Actually, they made more than that if you count inflows -- but we calculate the ETFreplay 100 by locking in starting assets as this captures the big themes quite well.

We began the ETFreplay 100 project a year ago to try to show a proxy for how investors are ACTUALLY doing.   The fact of the matter is that most people with wealth do not hold just 1 type of investment -- they own a portfolio and that portfolio consists of more than just US Stocks and Bonds.   There is no universally accepted benchmark -- nor should there be --  your individual benchmark is dependent on various factors that differ:  ie,  your age, your risk tolerance, your liquidity needs, your time-horizon etc...

So investors in reality own an allocation of different assets that hopefully corresponds to their profile.   What we do with the ETF 100 is aggregate all those by using ETF asset levels and then monitoring that total return performance over time.    The $136 billion in profits equates to a +12.7% total return for the year.

Learning to ignore all the noise on financial TV and twitter about INDIVIDUAL investments and instead focusing in your own process is extremely important.  Differentiate between what 'sounds good' as a one-liner on TV or a blog vs what actually matters -- your PORTFOLIO total return.    In the end, the only question that actually matters is --- did you make progress against your financial goals?

The ETFreplay 100 covers well OVER $1 trillion in assets.   US Stocks were the star performers in 2013.   Below summarizes the results and the most significant contributors and detractors for the year:


For a side comparison,  we compare the results to the most watched hedge fund benchmark:

 

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SPY S&P 500 Index Total Return For 2013

Jan 01, 2014 in Total Return

 

Total return measures capital appreciation AND the return associated with dividends (and any other distributions -- such as capital gains distributions).     It is always surprising how many emails we receive saying our numbers are incorrect because people compare the year-end SPY price to the previous year-end. That is INCORRECT. The correct TOTAL RETURN for 2013 for SPY was +32.3%.    That is +2.6% higher than the price return.   For ETF's with higher yields -- (and/or for those with cap gains distributions) -- this difference will be higher.   

Over a few years, this difference really adds up to be a substantial amount.   

 

 

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