Snapshot of Current Environment

Jan 19, 2012

Bill Luby at did a post the other day showing how there hasn't been a lot of difference between the Staples ETF (XLP) -- which has been around since mid-1990's --- and the S&P Low Volatility ETF -- which was the top asset gatherer of all the new ETFs launched in 2011.

The chart below shows the industry ETF which has best tracked the S&P High-Beta ETF.    



The Low-Volatility (SPLV) and High-Beta (SPHB) ETFs were launched in tandem by PowerShares and ETF investors now have over $1 billion in SPLV, over 30x the assets of SPHB.   Now the interesting twist, the Year-To-Date 2012 performance is a significant recovery from the large underperformance of high-beta during the second half of 2011:




This is somewhat reminiscent of the growth vs value performance divergence that crops up from time to time.   We don't think growth vs value or low-vol vs high-beta are particularly interesting strategies  -- mostly because we believe in testing and quantitative research --- and we don't know of methods that lead to good strategies with these types of things.    The great thing about the markets is that there are lots of ways to skin a cat and you only need to find your method. If you don't test your ideas, then of course it will take a lot longer to discover what works for you. On a somewhat related note to finding a technique that works for you, the equity value of our allocations board portfolios have all hit repeated new all-time highs this month.



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What Was Range of Available ETF Returns in 2011?

Jan 09, 2012 in Total Return

In this post, we have taken the largest 150 exchange trade products (assets) and grouped the returns into an overall distribution to summarize what was a range of generally available returns in 2011 (all are total return).   We wanted to see how we could summarize the year using a reasonably wide cross-section of widely-owned ETFs.    There are many different kinds of ETFs in the list – from bonds to stocks to MLPs, REITs, Preferreds, small cap, mid cap, country funds, regional funds, developed markets, emerging markets, cash, muni bonds, high-yield, mortgage bonds,  etc etc...  We thought this was an interesting way to do it since these are all liquid securities available to anyone.   While there are a number of useful ETFs that fall below the top 150 – this is a manageable high-level look: 

The median for the top 150 in 2011 was….  0.0%.   Yes,  Zero Point Zero.    So the distribution is easy enough to summarize, it is centered around zero where one-half were up and one-half were down.  
On the one hand, if you weren’t focused on a small set of niche ETFs -- longer-duration treasuries and/or U.S. utility stocks, there wasn’t a lot of opportunity to do better than the +10 to +15% range.   On the other hand, many of the more mainstream investor themes dropped more than -15% (emerging markets, gold miners, US financials, developed market international equities).

For a point of comparison, let's look at the 2010 distribution using the same scale:  

Note that for 2010, the median of this same group of 150 ETFs had a total return of +15.1% (the median ETF in 2010 was actually the S&P 500).   So the entire distribution shifts up very significantly --- note that many ETFs rose in excess of +20% in 2010 and only UNG lost more than -5%  (UNG was also the worst of the lot in 2011).   So this was a very positive year and there were plenty of places to achieve a fairly robust return without any real areas to lose money, everything essentailly went up with many rising a lot.

2011 was a year mostly to just stay out of trouble.    It wasn't an outright bad year, there just weren't that many places to really drive an entire portfolio strongly up.  While we all want to generate high absolute returns --- the fact is that we live in a world where you need to put it all in the context of what was actually available.    

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Hedge Fund Index vs 60-40 Balanced Portfolio

Jan 08, 2012 in Hedge Funds

The issue of which index to use as a performance benchmark is rarely all that clear.  One thing that is clear -- hedge funds had a terrible year in 2011. The Bloomberg hedge fund index was -4.9% in 2011. The HFRX Global Hedge Fund index was -8.9% in 2011.  The HFRX long-short equity index was down a staggering -19.1%.    Meanwhile, a standard 60-40 stock-bond balanced return using index funds was +4.1% for the year.    Below is the breakdown by quarter:  




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Gold ETF Monthly Returns Look

Jan 02, 2012 in Gold | Volatility

Since the Gold ETF (GLD) began trading, there have been 85 full months.    December of 2011 represented a  -2 Standard Deviation move down as the month ranked 83rd of the 85 in percentage return.  September 2011 was the second worst (84 / 85) at -11.1%.   GLD  dropped -3.8% for the quarter (Q4) and was +9.6% for 2011, completing its 7th consecutive up year.   The chart below uses the Monthly Returns page to rank all calendar month returns from low to high:


For fun, here is the date CNBC ran its special Gold Vault Visit video report.

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