Consumer Staples as a defensive theme for a developing global marketplace.

Feb 26, 2010

Lower vol sectors like consumer staples outperform in down market and gives absolute return in up markets. Classic characteristics of absolute return strategies.

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Correlations During Crisis

Feb 24, 2010 in Commodities | Correlation

I know that this may be implied by others --- but its not enough that something simply be non-correlated to be included in a portfolio. It also needs to have positive expected return. 

Structurally speaking, commodities markets are both 1) quite volatile and 2) generally quite sensitive to the overall economy -- which is what the stock market is sensitive to. In times of crisis, its been shown over and over again that correlations generally rise, so that you thought you were getting non-correlation, but instead you just get a more volatile asset that delivers an even larger drawdown for your portfolio. An excellent example is what just happened with crude oil in 2008, see images:

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Europe vs S&P 500 --- its a matter of currency effect

Feb 22, 2010 in Currencies

European indexes have generally tracked the S&P 500 when adjusted for currency.

Alter time periods and/or change symbols here:

http://www.etfreplay.com/charts.aspx

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ETF Statistical Distributions

Feb 20, 2010 in Volatility

Examples of the statistical risk-profiles of the S&P 500 and the Aggregate Bond Market (AGG). I have added the 2x Leveraged S&P 500 ETF as an example of going the wrong direction. The goal is to create a portfolio with low standard deviation and relatively high returns. Sound familiar? Yes, these are the core components of the sharpe ratio. The S&P 500 has never had an attractive sharpe ratio.

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Using ETFreplays data visualization tools to understand financial relationships -- EEM Focus

Feb 06, 2010 in Emerging Markets

Options market makers use daily volatility as their measure of how to handle securities with different sensitivities to broad events and market moves.   Getting a basic understanding of volatility can be quite useful when thinking about how to weight your holdings.    If you expect high returns, then high volatility is fine  --  you are expecting to be paid for the risk.   A major problem would be owning securities that are very volatile but you do not expect them to offer high returns.  

The Emerging Markets Index (EEM) has been more volatile from a daily standard deviation perspective every month for the last few years.   There has been no change in this in 2010.    Looking at the returns by month as in the first chart shows how this YTD period is hardly an unexpected outcome.

Our layout at ETFreplay.com has been designed to offer visual representation of data.   Financial relationships are much easier to understand with a well laid-out chart than a set of numbers in a data table.

 

 

To vary the timeframe of the above analysis and gain deeper understanding of this relationship, visit: ETF Charts

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ETF Credit Spreads

Feb 04, 2010 in Credit Spreads

This chart compares ETF's with similar durations and varying credit quality. From treasuries to investment grade bonds to high-yield bonds. The chart below shows the direction of credit spreads -- in an intuitive total return chart. All distribution adjustments are made for you -- do not expect a price chart found on most websites to be able to do this analysis.

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S&P 500 Dividends

Feb 03, 2010 in S&P 500 | Yield

Historical dividend yield for the S&P 500.   The decade began with very low yield and increased sharply as dividends (and earnings) grew.

 

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Foreigners Buying US Bond Indexes

Jan 26, 2010 in Bonds

What has currency done to US bond market returns for foreign investors? While various currencies have performed notably differently, the overall Deutsche Bank Dollar Index ETF is a good proxy to make a weighted judgment of overall effect. Since February 2007, when the UUP was launched, there has been a depreciation of the dollar of about -6%. With domestic currency bond market index returns in the +17 to +19% over this period and understanding that some currencies fared much better or worse than the underlying DB dollar index, you can see that currency can be quite a meaningful contribution to overall return.

 

To update this chart to today or visualize similar relationships using other ETF combinations, go here: http://www.etfreplay.com/charts.aspx

 

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A look at Ken Heebners CGM Focus Mutual Fund

Jan 23, 2010 in Mutual Funds

Ken Heebner is considered one of the very best fund managers in the country. But during this period of time, his fund was simply no different than the Brazil Fund ETF. This is an example of a fund manager exposing customers to a risk factor that they could have purchased in an ETF at a significantly lower fee. While Heebner should be credited for his outstanding long-term track record, his value-add -- like nearly all fund managers -- is in choosing broad risk expsosures, not 'stock-picking'. Moreover, he exposed customers to tremendous risk -- which could have been easily recognized if tracking his daily standard deviation of his funds returns -- as ETFreplay.com does.

 

 

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How Risky Are Intermediate Term Bond ETFs?

Jan 20, 2010 in Bonds | Volatility

This particular ETF, Barclays 3-7 Year Treasury Bond ETF (symbol IEI) with a stated effective duration of approximately 4.5 years, had daily standard deviation of 5.5% in 2009. While yields on treasuries are low -- duration management below 5 years is inherently low relative risk.

 

 

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