The Correction As Seen in the ETP Landscape

Since stocks bottomed in March 2009, I have periodically been publishing an SPX pullback table and occasionally a plot of all those pullbacks and their duration. The recent selloff in stocks, however, has been anything but an SPX pullback. I toyed with the idea of presenting comparable data for the NASDAQ Composite or NASDAQ-100 Index (NDX), but here again, the selling has been disproportionate in some areas of the NASDAQ universe, even though it has been hit harder than the SPX.

This time around I have opted instead for a chart that shows the peak-to-trough drawdown across the equity ETP universe, focusing on sector groups that I believe are among the most important to watch.

[source(s): Yahoo, VIX and More]

The data above cover only 2014 and indicate the maximum drawdown since the 2014 peak. While many of these maximum drawdowns are from earlier today, there are quite a few instances in which the maximum drawdown was established earlier in the year.

Note that while the NASDAQ gets most of the attention, it is the small caps (IWM) that have suffered the most among the major market index ETPs.

Not surprisingly, biotechnology (IBB), social media (SOCL) and Russia (RSX) have seen the largest declines, but among cyclicals, defensive stocks and European country ETPs, there is very little to choose from.

Finally, just for fun I have added four alternative ETPs with an equity flavor (SPLV, PBP, CWB and PFF) to show how low volatility, covered call, convertible bond and preferred stock ETPs have fared.

Related posts:

• A Very Middling Pullback, So Far
• Four Years of SPX Pullbacks in One Plot
• Chart of the Week: SPX and NDX
• Banks, Large Cap Tech and Leadership
• Chart of the Week: The Resurgent NASDAQ-100

Disclosure(s): none

The Options and Volatility ETPs Landscape

For several years I have publishing a graphical overview of the VIX ETPs landscape, with all the ETPs plotted on the basis of leverage and target maturity, such as the recent VIX ETP Returns for 2012.

Lately, however, an expanding crop of options and volatility ETPs has been taking root in a space that is closer to the VIX products than any of the other ETPs. I talked about the low volatility ETPs at some length in yesterday’s Beyond SPLV: The Expanding Universe of Low Volatility ETPs.

The graphic below is a plot of these securities, with the their geography, market cap and asset class in the rows and strategy/approach in the columns. I have talked about PBP in this space and was particularly interested to see that the buy-write / covered call approach is now being applied to gold in the form of the recent launch of GLDI.

Part of what prompted today’s approach is the launch of U.S. Equity High Volatility Put Write Index ETF (HVPW), which is the first put-write ETP on the market. I have talked about put-write strategies and the CBOE S&P 500 PutWrite Index (PUT) at some length here in the past and have included some links below for additional reading.

In the convertible bond space, CWB has been the most popular ETP in this space for the last few years. Earlier this week, PowerShares closed its competing Convertible Securities Portfolio ETF (CVRT), essentially ceding this space to CWB for now.

The other portion of the graphic below is my attempt at translating much of yesterday’s text into a format that makes for a more handy reference.

I will keep tabs on all of these ETPs going forward and in particularly look to see how HVPW and GLDI do in terms of both risk-adjusted performance and investor acceptance. I certainly hope it does not take investors as long to discover these products as it did for them to warm up to the likes of ZIV.



Related posts:

• Beyond SPLV: The Expanding Universe of Low Volatility ETPs
• VIX ETP Returns for 2012
• Covered Calls Finish Strong in 2011
• The Value of Selling Covered Calls
• Surfing for Weekly Buy-Write Trades
• Sideways Markets, Covered Calls and the RUT
• BEP and the Joy of Covered Call Funds
• One Approach for Volatile Sideways Markets
• The Often Overlooked Put Writing Strategy
• Graphical Comparison of Performance of PutWrite and BuyWrite Indices
• More on PUT Returns
• CWB: A New(ish) Convertible Bond ETF
• Comparing SPLV and VQT
• High and Low Volatility ETPs

Disclosure(s): long PBP at time of writing

CWB: A New(ish) Convertible Bond ETF

I have never been a particularly big fan of convertible bonds, but from time to time, these investments can make a good deal of sense.

Launched four months ago (and still qualifying as “new” according to my warped ETF chronograph), the SPDR Barclays Capital Convertible Bond ETF (CWB) is designed to track the price and yield performance of the Barclays Capital U.S. Convertible Bond >$500MM Index.

The table to the right shows the ETFs top holdings as of yesterday’s close, which include a top three of Bank of America (BAC), Freeport-McMoRan (FCX) and Amgen (AMGN). This same snapshot of current top ten holdings can be found here.

Since the launch of CWB on April 16^th, the bull market performance of this ETF has matched the SPX almost step for step, with lower volatility. In the chart below, CWB is represented by the red line, the SPX is in blue, and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) is shown in green. This chart is an almost perfect illustration of why convertible bond ETFs (or closed-end fund or mutual fund) can be a powerful addition to one’s portfolio. At its best, in bull markets, convertibles have an upside comparable to stocks, with less downside risk. At their worst, which is generally in non-trending markets or bearish markets, the lower yield and expense of owning options that do not appreciate makes convertibles inferior to standard bonds.

Of course, options savvy investors will probably wish to buy their own bond ETF and cherry pick their favorite options plays, but for those who wish to forego a customized approach and stick with an off-the-shelf product, CWB is – for the moment at least – the only ETF which is up to the task.

[graphic: StockCharts]