Total Returns And Footnotes

Jul 21, 2011 in Total Return

Total return is a concept that is surprisingly misunderstood.  We get emails asking why does our moving average not match Yahoo or Tradestation?   

Most Internet data sources and brokerage software platforms don't track total return -- yet total return is how all index returns are stated.  In 2010, the SPDR S&P 500 index fund (SPY) was not +12.8%, it was up 15.1%.  Vanguards investment grade bond fund (VCIT) was not +5.1% in 2010, it was +10.0% (and had some nice tactical swings throughout the year).   The difference was distributions (which come in 2 forms:  dividends and capital gains distributions).  

One common thing we see is for various people to compare their performance to the price-only +12.8% and then footnote it saying 'dividends excluded'?   To us, this is just as bad as mutual funds that claim the expense ratio is 1.2% and then footnote it saying you will be charged a 3% redemption fee if you sell the fund in first 5 years.   There are no hidden fees with ETFs -- no sales loads, no purchase or redemption fees, no 12-b-1 fees.   The 'A-class' 'B-class' 'C-Class' 'H-Class' 'I-class' mutual fund system is non-sensical in the ETF world --- there is only a single class of an ETF.     


Here is another one: the Vanguard 60-40 stock-bond balanced fund returned +20.1% for the 10 years ended June 30th, 2011 [1]

[1] excludes dividends


Well, a large part of owning a bond in the first place is the coupon.   As it turns out, that index fund (VBINX) was +59.7%  INCLUDING dividends.  So it is entirely disingenuous to compare to a number that is one-third of the actual index return. 



While this is all obvious to some -- it is clearly still not understood by many.

We created a free Comparison Tool to make it easy to view this concept as we feel the only REAL way to truly understand something fully is to interact with it through an application -- rather than just read about in a paper or on a blog. 

Try a few out.  Be aware that even if its not a large dividend payer, any capital gains distribution will also affect the return.    

Bond ETFs:














Relative Strength vs Relative Weakness

Jul 19, 2011


Vanguard Europe ETF Country Weights

Jul 11, 2011 in Country Funds


Just information to note.   Greece is very small weight in even the regional Europe ETF.  However, Spain (EWP) and Italy (EWI) are 5th and 7th in the index:



According to PIMCO, "Italy has the 3rd largest amt of debt outstanding behind US & Japan. A bailout would require much more funding than PIGS combined."



$1 Billion ETFs

Jul 07, 2011

ETF asset growth continues to demonstrate the accelerating importance of exchange based products in modern portfolios.     Below shows the growth in the number of $1 billion asset products:


We find the media focus on ‘new ETFs’ to be 95% waste of time.  While some notable new ETFs occasionally come to market, these are not like IPOs --- these are indexes.   They are not intentionally priced low to create a short-term pop --- they price in line with the value of the underlying index.   The overwhelming focus by investors should be on the real meat & potatoes ETFs that represent the real portfolio drivers – the ones with assets and that have been around for many years.

On that note, rather than watch ‘new ETFs’ --- a ridiculously over-covered topic (driven by the ad budgets of ETF providers trying to market these products), we will instead begin to focus on ETF products gaining ‘asset traction.’   This is much more interesting.    Before Silver had its monstrous, wealth-creating run in 2010 --- its assets grew large and signaled to at least ‘pay attention’.

Below is a list of ETFs that in the first 6 months of the year went above $1 billion in assets (and started the year below it).   

Note that PIMCO now has its first two billion dollar products --- a very unexciting cash management ETF (MINT) -- as wells as a short-term Inflation Protected (TIPS) product (STPZ).  AMLP is another oil & gas master limited partnership product (first one out and to get traction was AMJ).   This MLP area is a group that should at least be on your radar as Oil & Gas MLPs are the ‘toll-roads’ of energy infrastructure in the United States – they own the pipes that transport energy and these assets are limited in supply --- who wants to approve new oil pipes through their countryside?    Another item of note is the currency theme – PCY, WIP and of course UUP all have strong currency components to them.   The investment landscape is going more global each and every year – this is a 20-year trend – embrace the investment implications of this secular move to globalization.

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