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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Bond ETF Investing And The Debate Over Long-Term Treasuries: Don’t Get Distracted.

Aug 29, 2010 in Bonds

We have watched with amusement all the discussion of bond ETF investing as it relates to ‘bubbles.’  Remember that the bond market as defined by the Aggregate Bond Index has a duration[1] in the 4-5 year range.   This is where the real investable bond market is – not 30 year treasuries.  

Indeed, by our ETF database (which covers >96% of overall ETF/ETN assets), we see that less than 10% of total treasury bond ETF assets are in bond funds with durations greater than 10 years.  Our overall weighted average estimate of the duration of ETF investors aggregate duration in the Treasury bond grouping is 4.9 years.

Now, it IS true that the risk of drawdown for 10- 30 year bonds becomes more significant after a parabolic spike up like the one we have been in – but this should be obvious as this is just the nature of volatility.   Long duration bonds are very volatile securities – and when a highly volatile security goes parabolic, drawdown risk will increase.  We find it irrelevant and distracting to listen to this talk of bond bubbles and more practical to think in terms of actual drawdowns within the bond market sub-segments.    

Here is an ETF Volatility Chart of relative volatilites across some different kinds of ETFs. We included IEI (~4-5 year duration U.S. Treasury ETF) because it represents the weighted average duration of all Treasury bond ETF investor assets:



[1] Duration measures how fast you are to be paid your money back.  It adjusts for the stated coupon so that if your bond pays a high coupon, the duration is lower as you are being repaid more quickly and therefore the variability of possible cash flows is reduced. 



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ETF Total Return vs Price Return Chart Review

Aug 17, 2010 in Total Return

Given the markets strong preference for yield this summer -- witness repeated new highs in Corporate Bond Indexes, Preferred Stock Indexes, Master Limited Partnership (MLP) Indexes, High-Yield Bonds, Emerging Market Bonds etc...  we wanted to update some charts to show how the difference between total return and price return works out:

Longer-Term Treasury Bonds (TLT):

Utility Stocks (XLU):

Consumer Staples (XLP):

High-Yield Bonds (HYG):


ETF List of New Highs Can Help You Understand Money Flows

Jul 28, 2010

This summer is a good reminder that ETF investing does not revolve exclusively around equities.  After assuming a leadership role in early May, many non-equity forms of ETFs have made repeated new highs over the past few months.  Treasury Bond ETFs have been the most obvious example of relative strength but other groups performing well include: the Master Limited Partnership products (AMJ), Emerging Market Bond ETFs (EMB, PCY), Preferred Stock ETFs (PFF,PGX, PGF) and more recently, U.S. Utility Stock ETFs (XLU, IDU, VPU).  

What do the majority of these ETFs have in common? Most of the recent 6-month ETF list of new highs involves indexes associated with yield (and lower relative volatility vs the S&P 500).

Try the interactive functionality of the above webpage here: New Highs and Lows App

With regard to equities, we’ve seen some new multi-month highs made in some select Asian and Latin American equity indexes.   We will be watching to see to what extent other equity country funds can confirm this new potential leadership area (emerging markets equity).     

U.S. stocks made fresh six-month lows at the beginning of this month.   The drawdowns of some of the primary indexes this year have been -15.7% for the S&P 500, -20.1% for the Russell 2000 (IWM) and -22.8% for the Vanguard Europe ETF (VGK) (drawdown is the maximum high to low correction using closing prices).   These groups have rallied hard over the past 20 days but they appear to be in a holding pattern as evidenced by their poor/mediocre rankings on 3 & 6 month relative strength lists.

Another important item to point out is that owning bonds and yield-oriented hybrid securities (like those listed above) has been a LOWER volatility method to making money these past few months.

When the market gets volatile – as it does during corrections – buying inverse ETFs may seem like a good way to make money -- but remember, the Sharpe Ratio penalizes for volatility and you must expect large returns to offset taking on such rising volatility environments.  Short-sellers have been punished hard this month while lower volatility funds (like those listed above) have appreciated.

In some respects, owning bonds -- particularly treasuries -- is a dominant method over shorting stocks.   The volatilities are far lower if you keep your maturities reasonable.  Thus you can express a bearish view without taking the same risk as you do during hard short-squeezes in equity markets.

We think it’s important to stay abreast of what the market itself is telling us through relative strength. When combined with your own fundamental ETF ideas, this market-generated information can be the key edge you have in terms of finding profitable entries and exits.

As we proceed further into the 2nd half of 2010, we have every intention of finding market segments that stay consistent with our global relative strength models.  Near-term, look for pullbacks in some of the improving relative strength ETFs to make any adjustments necessary to your portfolios net exposures.


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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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