Warren Buffet vs Bill Gross vs Index ETFs

Apr 30, 2011

With the Berkshire Hathaway annual meeting this weekend, we thought we would show some charts on trailing 7-year performance.   In the consulting community, seven years is considered ample time to compare results.  

As investors, why should we care how a given fund does versus its stated benchmark index?  What we ultimately want to do is find strong performers while staying within our own risk tolerance --- not attempt to add a few percentage points over a poor-performing benchmark with security selection.

BRKB Berkshire Hathaway Common Stock  (Warren Buffet)

PTTRX Pimco Total Return Bond Fund  (Bill Gross)

 

 

It should be quite clear in the charts above how some basic ETFreplay.com strategies could benefit your timing of such volatile indices as Australia (EWA) and Energy (XLE).

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Buying Weakness vs Buying Strength

Apr 30, 2011

As the Japanese tsunami reached its zenith and rumors were swirling about nuclear wind possibly going into major Japanese cities, an intermediate low was reached. Another instance of how watching the present news too closely can lead to bad investment decisions -- a classic problem well-documented in behavioral finance.

Furthermore, if you look at the asset flow data, you can see that money poured into Japanese ETFs -- such as EWJ.   'Buy the dip' was the message.   But the Japanese market has not bounced nearly as well as other country funds.   Buying relative strength instead of buying weakness was once again the better performance play.


Below is a chart of the 10 largest commodity funds (in assets). We equal-weighted this to create our own 'commodity index' using the Free Portfolio Combine page.

 

 

 

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What Happens When The Dollar Index Goes Down?

Apr 29, 2011

With the US Dollar in the news and opinions about what it means running rampant, it may offer somewhere to start by showing what has actually happened over the last 12 months on days when the dollar index goes down:

 

 

Down Day Association Stats

In reality, you should look at many different timeframes and lookbacks and % decline scenarios.   This is quite easy to do with the navigational controls at the top.  

Once you've seen history, you may or may not choose to go with the historical facts -- but at least you know what the historical facts are!

Note the very low correlations in the right-hand column and the very obvious fact that foreign securities outperform due to the currency effect.

 

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Some ETF Structures Are Flawed As Investments

Apr 26, 2011

Quick Tip: The U.S. Stock Market over the past 18 years has an annualized standard deviation of about 17%. One good clue that an ETF structure is dangerous is if the volatility is multiples of this, i.e.  40-150%.   Volatility is easily viewable on our ETF Charts and ETF Screener pages.

 


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PIMCO Total Return Fund Lookback

Apr 21, 2011 in Bonds

PIMCO's flagship fund PTTRX, the largest mutual fund in the world, filed for an active ETF yesterday. We have followed PIMCO in general for many years and find it a good example of a strategy based on tactical exposures. Note that Bill Gross is definitely NOT from the passive 'allocate and rebalance' school of portfolio management. PIMCO alters exposures consistent with its tactical views, often aggressively. This is by the way, really what index ETFs are perfectly suited to do.

2010 was something of an off-year for PIMCO Total Return, it slightly underperformed some generic treasury and corporate bond index funds. Prior to 2010, PTTRX had been performing between the return of Intermediate Treasuries and Intermediate Corporate Bonds in each of the prior 2 years. That is, Gross was able to favorably rotate between the better of the two funds. Lets take a closer look in a quick slideshow.

Pimco
 

Click Lower Left 'Menu' Button To View Full Screen.

We would note that you can enter a few of these bond funds into ETFreplay.com relative strength models and see how well some of these strategies work. Keep in mind you do also have many other return enhancement ETFs available with junk bonds, preferred stocks, emerging market bonds, foreign soverign and foreign credit bonds etc...

While we have been highlighting commodities for many months (something of the antithesis of fixed-income), we thought we would mention that for more conservative balanced accounts, there are an increasing number of excellent, targeted, tactical bond strategies available in ETF form.






Note: we have added the ability to backtest 50 ETFs together at once and our backtesting reports have added many new features over the past few weeks. Take a look on the Backtest App Menu
page.

 

 

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Weekly ETF/ETN Snapshot For April 15th, 2011

Apr 16, 2011

Warning: Gratuitous Example of Exchange Traded Products Below:

 

 

 

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How Many ETFs In Order To Track The World?

Apr 07, 2011

How many ETFs do we need to follow in order to track the world?   There is obviously no easy answer as it depends on how far you care to go.    We've discussed before how there has been strong innovation in the world of specialized indexes and that this process has effectively allowed everyone to rearrange their portfolio exposures at virtually no cost.   This used to be done through program trading of hundreds of securities and it was costly.   Now you can swap 300 Preferred Stocks (PFF) for 14 Futures Contracts (DBC) for zero commission and a penny spread.   Of course, a carpenters tools can create a wonderful piece of furniture -- or chop off a finger.   But the opportunity for broad or targeted strategies is there.

Below is a visual for how the ETF market is structured in assets.   The top few hundred represent the vast majority of the assets.   The number of funds > $100 million is now 537.   This is considered by some to be the level where profits are being made by the product provider.    Clearly, this is low risk and high reward for an investment manager.   If you can create a multi-billion dollar product, the benefits of scale are tremendous as you don't have to pay for star managers.   $1 trillion in assets now surely going to $2 trillion and beyond someday.   Most people we talk to still equate ETFs with SPY --- the understanding of ETFs is still very, very low.    Then again, many people (even professionals) for some strange reason equate the fixed-income market with 30-year treasuries.    

 

 

Separately, an update on the 'High-Quality' index.    Recall all the hype for past year about overweighting 'high-quality'.    While there is no one definition of what constitutes high-quality, it is implied that high-quality is synonymous with 'high credit ratings'.    Does it work to overweight EQUITIES with high credit ratings and therefore underweight low credit equities?    Maybe it does and maybe it doesn't but with so many ETF choices out there,  this argument strikes us as pretty weak primary strategy.  Someday, high-quality will be in favor --- and then again out of favor.   But we have so many other options.

 

 

 

 

 

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