Country Fund ETF Total Returns YTD

Nov 08, 2010 in Country Funds

We showed where the S&P 500 ranked relative to an adjusted Ameritrade 100 ETF list recently.   This shows the S&P 500 vs the primary country funds as defined by weightings within the world index.  Note that other than Brazil, the smaller countries have done generally better.    And developed Europe has obviously been an area of weakness -- though Sweden is the exception, up +30% on the year.    Greetings to all our users in Stockholm.


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Long-Term ETF Asset Growth

Nov 07, 2010

Source: Blackrock

At first view, the # of global ETF products might seem like a lot at 3,257.   But consider that there are greater than 69,000 mutual funds in existence (globally).

Moreover, ETF assets total about $1.3 trillion vs over $22 trillion for the global mutual fund industry. In fact, the $1.3 trillion in global ETF assets is actually just a fraction of the amount of assets that the mutual fund industry has lost in recent years when it peaked in 2007. That makes for roughly -$4 trillion in change versus the $26 trillion in assets of a few years ago.

I have spoken to a number of professional money managers regarding ETF’s. My impression is that the market has enormous room to grow as many managers I speak with are still not using ETF’s in any way. 

In the cases where they are, why are they doing so?

1. A particular market segment is attractive but there is no information edge to justify individual security-selection. Especially relevant in international and/or emerging markets.

2. Liquid access to non-correlating asset class exposure (Gold, Aggregate Bond Index, TIPS, Commodities)

3. Add Yield to portfolio (preferred stocks, inv-grade/ high-yield bonds, emerging market bonds, MLPs, high-dividend ETFs, and/or high-dividend sector ETFs, etc)

4. Alter portfolio beta to enhance return

5. Diversify with some non-correlating indexes that complement an otherwise concentrated list of best ideas

6. Reduce administrative burden of smaller separate accounts – rolling cash from maturing bonds across long lists of accounts is time-consuming and very low in terms of possible alpha from this task.

7. Macro Calls – express tactical views based on changes in the marco outlook for various market segments (global or domestic).

8. Hedging late in the calendar year with a short (or inverse) position – rather than selling longs --- in order to avoid taxable gains in the current year.

9. Liquidity – try selling individual muni or corporate bonds through a broker and see the bid/ask spreads you are quoted.

10. Pair Trading. Shorting a sector within a list of long individual stocks.

11. Shorting very low yielding long-duration treasuries

Interesting note:

Hedge funds generally wouldn't be caught dead owning a mutual fund in their portfolios.   However, while still a small percentage in terms of penetration -- many hedge funds have rationalized using ETFs (long and short) in some way.

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Federal Reserve Bond Portfolio Approximation

Nov 05, 2010

An email came in with an interesting idea to take a look at what the Federal Reserve portfolio of bonds might look like. We gave it a shot and compared it to the t-bill ETF return.  


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How many market segments are beating the S&P 500?

Oct 29, 2010 in S&P 500

Recently, it's been discuseed how just a few stocks were driving most of the gain in the S&P 500. I heard the numbers used were something like 30% of the gain in the S&P 500 this year was being driven by just 5 stocks -- and that this implies a narrow market. Obviously, this is a very U.S. centric view of the world and is not how most forward-looking advisers view the investment landscape.

It also begs the question, how many market segments as defined by ETFs are beating the S&P 500 this year? To come up with a reasonable list -- we used an adjusted Ameritrade list (we took off a few of the most illiquid arcane ETFs and replaced with GLD, IWM, DBA & MOO -- 4 pretty core ETFs we feel should have been on the list in the first place)


The answer is that 65 of the 100 below are beating the S&P 500 YTD through the end of October. All figures are total return (dividend and distribution adjusted).

If we had bought all 100 on 12/31/09 at 1.0% (equal-weighted), the portfolio would be +9.9% YTD vs +7.9% for the S&P 500.


1 VNQ Vanguard Morgan Stanley REIT   25.1 %
2 RWR SPDR Dow Jones REIT   24.4 %
3 EPI WisdomTree India Earnings Index   23.9 %
4 GLD SPDR Gold Shares   23.6 %
5 RWO SPDR Dow Jones Global Real Estate   20.5 %
6 EWX S&P Emerging Markets Small Cap   19.5 %
7 RWX SPDR DJ International Real Estate   18.3 %
8 VSS Vanguard FTSE World ex-US Small Cap   17.5 %
9 EDV Vanguard Extended Duration Tsy (25+yr)   16.8 %
10 VBK Vanguard MSCI U.S. Small Cap Growth   16.8 %
11 VOT Vanguard MSCI U.S. Midcap Growth   16.8 %
12 PCY PowerShares Emerging Mkts Bond (7-8yr)   16.5 %
13 MOO Market Vectors Agribusiness   16.2 %
14 IWO iShares Russell 2000 Growth   15.4 %
15 IJH iShares S&P MidCap 400 Index   15.3 %
16 IWS iShares Russell Midcap Value   15.2 %
17 VXF Vanguard Extended Market ETF   15.2 %
18 TLT iShares Barclays Long-Term Treasury (15yr)   15.2 %
19 VO Vanguard MSCI U.S. Mid Cap   15.2 %
20 VB Vanguard MSCI US Small Cap   15.2 %
21 VGLT Vanguard Long-Term Gov't Bond (14-15yr)   15.1 %
22 IWP iShares Russell Midcap Growth   14.9 %
23 VWO Vanguard MSCI Emerging Markets   14.3 %
24 IWC iShares Russell Microcap Index   14.3 %
25 BLV Vanguard Long-Term Gov't+Credit (12+yr)   13.8 %
26 VBR Vanguard MSCI U.S. SmallCap Value   13.6 %
27 IWM iShares Russell 2000 Index Fund   13.5 %
28 VCIT Vanguard Interm Corp Bond (6-7yr)   13.4 %
29 IJR iShares S&P SmallCap 600 Index   13.4 %
30 VCLT Vanguard Long-Term Corp Bond (12+yr)   13.2 %
31 BIV Vanguard Investment Grade-Credit (6-7yr)   13.2 %
32 JNK SPDR Barcap High-Yield Junk Bond (5-7yr)   13.0 %
33 VOE Vanguard U.S. Midcap Value   13.0 %
34 SCZ iShares MSCI EAFE Small Cap Index   13.0 %
35 AAXJ iShares MSCI Asia ex-Japan   12.5 %
36 DBA DB Agricultural Commodities Index   12.3 %
37 GXC SPDR S&P China   12.3 %
38 IWN iShares Russell 2000 Value Index   12.2 %
39 LQD iShares iBoxx Invest Grade Bond (7-8yr)   12.0 %
40 IJS iShares S&P SmallCap 600 Value   11.7 %
41 GUR SPDR S&P Emerging Europe   11.3 %
42 ILF iShares S&P Latin America   10.9 %
43 VGIT Vanguard Interm-Term Gov't Bond   10.7 %
44 EWC iShares MSCI Canada Index Fund   10.6 %
45 AOA iShares 90-10 S&P Aggressive Allocation   10.3 %
46 VUG Vanguard MSCI U.S. LargeCap Growth   10.0 %
47 RSX Market Vectors DAXglobal Russia   9.9 %
48 IEI iShares Barclays 3-7 Yr Tsy Bond (4-5yr)   9.6 %
49 TIP iShares Barclays TIPS (4-6yr)   9.5 %
50 IWF iShares Russell 1000 Growth   9.3 %
51 VTI Vanguard MSCI Total U.S. Stock Market   9.2 %
52 CIU iShares Barclays Intermed Credit (4-5yr)   9.0 %
53 IWV iShares Russell 3000 Index Fund   8.9 %
54 VIG Vanguard Dividend Appreciation   8.6 %
55 MGK Vanguard U.S. Mega Cap 300 Growth   8.5 %
56 IWB iShares Russell 1000 Index Fund   8.5 %
57 BKF iShares MSCI BRIC Index Fund   8.3 %
58 BWX SPDR Barcap Global Ex-U.S. Bond (6-7yr)   8.3 %
59 EWA iShares MSCI Australia Index Fund   8.2 %
60 EFG iShares MSCI EAFE Growth Index   8.1 %
61 VYM Vanguard High Dividend Yield Index   8.1 %
62 BND Vanguard Total Bond Market (4-5yr)   8.0 %
63 AGG iShares Barclays Aggregate Bond (4-5yr)   8.0 %
64 WIP SPDR Int'l Govt Infl-Protect Bond (9-10yr)   7.9 %
65 VT Vanguard Total World Stock Index   7.9 %
66 IVV iShares S&P 500 Index Fund   7.9 %
67 VEU Vanguard FTSE All-World ex-US   7.8 %
68 EWG iShares MSCI Germany Index   7.7 %
69 IWD iShares Russell 1000 Value   7.7 %
70 FXI iShares FTSE China 25 Index Fund   7.6 %
71 AOR iShares 60-40 S&P Stock-Bond Allocation   7.5 %
72 GVI iShares Barclays Interm Gov't+Credit (4yr)   7.4 %
73 EWU iShares MSCI United Kingdom Index   7.1 %
74 ACWI iShares MSCI All-World ACWI Index   7.0 %
75 VTV Vanguard MSCI U.S. LargeCap Value   6.7 %
76 IVE iShares S&P 500 Value Index Fund   6.7 %
77 VMBS Vanguard Mortgage-Backed Bonds (2-3yr)   6.4 %
78 VCSH Vanguard Short-Term Inv Grd Bond (2-3yr)   6.3 %
79 MBB iShares Barclays MBS Bond Fund (2.8yr)   6.3 %
80 TFI SPDR Nuveen Barclays Muni Bond (9-10yr)   6.2 %
81 AOM iShares 40-60 S&P Moderate Allocation   6.1 %
82 MUB iShares S&P National Muni Bond (2-3yr)   5.6 %
83 VGK Vanguard MSCI Europe   5.4 %
84 DJP Dow Jones-AIG Commodity Index   5.2 %
85 VEA Vanguard MSCI Euro Pacific   5.1 %
86 BSV Vanguard Short-Tm Bond Mix (2-3yr)   4.9 %
87 EWZ iShares MSCI Brazil Index Fund   3.7 %
88 EWJ iShares MSCI Japan Index Fund   3.6 %
89 CSJ iShares Barclays 1-3 Year Credit (2yr)   3.2 %
90 EFV iShares MSCI EAFE Value Index   3.0 %
91 VGSH Vanguard Short-Term Gov't Bond (2yr)   2.7 %
92 IOO iShares S&P Global 100 Index Fund   2.7 %
93 SHY Barclays Low Duration Treasury (2-yr)   2.7 %
94 SHM SPDR Short-Term Municipal Bond (2-3yr)   2.6 %
95 DBC PowerShares DB Commodity Index   2.3 %
96 EWQ iShares MSCI France   0.2 %
97 FEZ SPDR Euro STOXX 50   -3.3 %
98 EWI iShares MSCI Italy Index   -6.8 %
99 EWP iShares MSCI Spain Index   -7.9 %
100 DBO PowerShares DB Oil Fund   -8.1 %


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Best ETF Broker Offer Is Currently TD Ameritrade

Oct 29, 2010 in Screener

Per user requests, we have added a prepared list for the TD Ameritrade offer within the ETF screener.  Note that Ameritrade chose not to include many very popular ETFs such as Gold (GLD/IAU),  the Russell 2000 (IWM) and some Agriculture ETFs (DBA, MOO etc) -- among others.   They also did a few odd things like add the S&P 500 Value index but not the S&P 500 Growth index -- they added the MSCI Mega Cap 300 Growth index --- go figure. Nevertheless, the inclusion of many country and regional funds and an overall wide assortment makes this the most compelling offer yet.

Note that the ETF/ETN database covers roughly 500 products (including inverse/leveraged) and this results in coverage of 97% of overall ETF/ETN assets and >98% of ETF/ETN trading volume.

The bottom ~600+ ETFs make up just ~2% of overall assets and trading volume.   

While we will continue to add to our database, we will do so in a controlled manner so that we can continue to offer a product that acts as a filter for an otherwise problematic process.  As a Chartered Financial Analyst, experienced professional money manager and long-time user of financial databases, I think we understand the needs of the sophisticated investment analyst.  The team at will continue to work hard to deliver tools and techniques that leverage a process based on accurate data validation of total return and robust functionality within easy-to-use, browser-based applications.

Here is the snapshot of the Ameritrade ETF list and link to the screener page:


ETF Screener Link


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A Fair Example of Global ETF Relative Strength

Oct 20, 2010 in Backtest | Relative Strength

We showed a few examples of some very basic relative strength techniques at a recent investor event.

This example was meant to show a case of a relative strength strategy that easily could have been thought of as unbiased at any point in past 10 years -- or right now for that matter.

For simplicity, we have used the global regional ETFs and have simply covered the major parts of the 'developed world'.   We know that emerging markets have been excellent performers over the past 7-8 years -- as have selected other assets like Gold -- but we have intentionally left these out.   We wanted to show something that had some poor performing picks, a few good ones and therefore representative of someone who didn't pick ETFs particularly well but implemented a sound technique to stay with leaders and avoid large underperformers.

Importantly, we believe investors SHOULD decide first which ETFs they would like to be involved with and exclude those they have no interest in on a fundamental basis -- this is value-add to a basic, mechanical technique such as this.   

So for this example we use the World Index as a starting point and seek to just 'cover' the developed regions:

Current Approximate Weightings in Global Indexes are:

1) United States                 42.0%

2) Developed Europe         25.0%

3) Japan                              7.0%

4) Developed Pacific [1]       7.0%

5) Canada                          4.5%

***Emerging Markets       Excluded

[1] Developed Pacific is ~97% Australia/Hong Kong/Singapore and 3% 'other' (New Zealand etc..)

From an indexing perspective, Canada is always kind of the lonely child.   Canada is generally not included within a broader regional ETF -- and is not generally lumped with the United States for a North American ETF.   For conservatism here, I will exclude Canada and use the first 4 only.  These are logical regions in our view.   We get coverage of many different countries within this regional framework so this seems quite fair and hardly something that could not have been thought of many years ago -- or even today.

We will include the first 4 from above and SHY, a <2-year duration U.S. Treasury ETF which will act as a benchmark for positive returns.   If no region of the world is beating 2-year maturity short-term fixed-income -- then SHY will by default be thought to be the highest Relative Strength ETF.  

Here is the result using a 6-mo/3-mo 2-factor relative strength model with monthly re-balancing.

Note all historical results are purely hypothetical and meant to show the mechanics of the backtesting application.  This does not represent investment advice.

Symbol list here is:  SPY,EWJ,IEV,EPP,SHY


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Follow-up on ETF expenses

Oct 11, 2010

Following up on the math of ETF trading/investing expenses.   This is more important in terms of trend than anything but think about this Ameritrade offer from another angle.

Some assumptions:

1) Assume you do 30 round-trip trades in a given year for 60 total trades (30 buys and 30 sells).

2) Let's say 50% are closed within 30 days and 50% are held longer than 30 days.

The overall commissions would be 15 x $19.99 = $299.85

Using a $200,000 account value, this would represent about 15 basis points in commissions (0.15%).

If we assume that the average expense ratio is 40-60bps, then the total cost is 55-75 basis points per year (0.55% to 0.75%).

Keep in mind that daily fund pricing includes the deduction of the expense ratio.  There are 252 trading days in a year and if a fund charges 30 basis points, then there is a daily deduction of 0.0012% per day taken out of the net asset value.  This is in turn reflected in the daily closing prices -- the point being that the expense ratio does not need to be deducted again when we are already using closing prices in our analysis at -- thus the costs are just the commissions, which are 15 basis points in this example. For a $500,000 account, the total annual cost of commissions is just 6 basis points 0.06%

While much time is spent discussing expense ratios and savings -- the differences between ETFs are trivial in context of markets that can move percentage points in just a few hours.

The bottom line is that ETF investing is extremely low cost.  Comparing expense ratios between ETFs at this low level is a waste of time. It just isn't important.



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A Look At The Acceleration In The No-Commission ETF Universe

Oct 08, 2010

Today, Ameritrade announced no-commission trading on 101 ETF/ETN's, the most aggressive move by a brokerage to date.    

Vanguard, Schwab & Fidelity all have various no-commission ETF programs ongoing but TD Ameritrade has now raised the stakes.   Ameritrade is the first to offer no-commission trades on select country funds such as India, China, Australia and Canada.  Country fund strategies are quite powerful and we think this is a very positive development.  The list of ETFs also includes multiple REIT ETFs, the junk bond ETF from State Street (JNK) as well as multiple commodity indexes.  

The trends are the important things to note here:  1) ETFs are allowing increasingly targeted exposure to various global market segments and 2) now you can get these targeted exposures for extremely low expense ratios and no transaction fee. 

Below are the 101 ETF/ETNs Ameritrade has made commission-free (Be advised up-front though that you must hold an ETF 30 days or else be charged a $19.99 commission  --- note that this isn't an 'extra' penalty as $19.99 simply represents $10 for the sell and $10 for delayed commission payment of the initial buy.   For comparison purporse,  Ameritrade charges a $49.99 commission for selling a commission-free mutual fund within 30 days of purchase): 




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Moving Average ETF Backtest For Portfolios: New Functionality

Sep 20, 2010 in Backtest | moving average

If you have created a portfolio list on ETFreplay, we are building new applications to leverage your ETF lists.  (If you are unsure on how to create a personalized ETF list, click here for a quick video: Setting Up Portfolio Lists Short Tutorial Video )

We have two new modules out that we have been working on for the past few months.  These applications offer simplified views to help us try to understand larger forces at work in the global marketplace.  

Building upon academic research regarding the use of moving averages, these apps save investors time by allowing many calculations and quantitative analyses to be simplified into a few clicks.  We think that creating specific entry/exit rules and creating a detailed strategy report adds value to better understanding a concept. That is, we create apps that convert concepts into tangible, specific techniques.  The accountability of these techniques is built into the very architecture of the website. On any day, you are just a click away from an updated view of the profit and loss history of a particular strategy.

Importantly, this type of research should be used as a complement to other forms of research. We suggest you think about which types of ETFs you want to be involved with over the long-run and then use techniques such as relative strength and moving average backtesting to help you research methods that reduce risk of a large drawdown, while potentially offering to enhance your return as well.



The example below uses 4 key smaller developed markets outside Europe & the U.S.

1.  EWA   iShares MSCI Australia Index
2.  EWC   iShares MSCI Canada Index
3.  EWH   iShares MSCI Hong Kong Index
4.  EWS   iShares MSCI Singapore Index





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DBA and Stock vs Bond ETFs In Perspective

Sep 03, 2010

A few charts to end the week:






Commodities Summary Page



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