Stock-Picking vs ETF Relative Strength

Jul 09, 2010 in Relative Strength

 

The issue with ‘value-add’ in investment management is complicated.  Strong performance by stock-pickers is in many cases due to implementation of a particular strategy (such as strongly overweighting ‘financials’ or ‘foreign stocks’). 

If a manager does a good job in finding good strategies such as ‘financials’ -- that is, financial stocks do well – then do we really care that much about the extra return on top of that of stock-picking?   Remember, stock-pickers who perform in one era don’t often repeat it – usually because their particular ‘strategy’ goes out of favor.  

If we pick 2 managers that have a core ‘financials strategy’ --- and the financials sector goes up 45% --- do we really care that one manager did +48% and the other did +42%?   Your allocation made a lot of money as you captured that 45% gain, on average.   But we could also just do the same thing buying a low-cost financial index ETF and get the same +45% index result and have zero risk of underperformance.  

Core ‘beta strategies’ like this can all be replicated with ETFs at very low cost.  If a portfolio manager or investment advisor is good at picking market segments (good at picking ETFs), then they should be paid a fee for capturing the return of a good idea -- even if they don’t outperform that segment.  An investment advisor that picks good ETFs is adding significant value.      

For a private investor, doing it yourself makes a lot of sense in a world of low-cost ETFs.  You will of course need good, well-structured data in order to make good investment decisions.  Everyone does  -- from high-end hedge fund managers to individual investors to professional investment advisors.   We provide users with good ‘institutional-grade’ analysis apps that focus on precise methods and techniques for helping you with specific, backtested entries and exits on timing investment STRATEGIES (ETFs).

 

Snapshot of an ETF Relative Strength Strategy Using Bond ETFs (Starting Point End of 2007 -- near inception date of JNK -- and INCLUDES the credit crisis that hit Junk Bonds in 2008). 

 

 


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Comments (2) -

Mar 15, 2011 10:25 #

portfolio manager or investment advisor is good at picking market segments then he is fruitful

ooma United States

Mar 23, 2011 17:03 #

If a portfolio manager or investment advisor is good at picking market segments , a big IF

evernote vs onenote United States

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