Showing posts with label PYH. Show all posts
Showing posts with label PYH. Show all posts

Tuesday, October 20, 2009

Diving a Little Deeper into the Strategy-in-a-Box ETFs

I was sufficiently pleased by the response to my strategy-in-a-box ETFs post that it seems appropriate to launch a follow-up post to address several questions raised or implied by readers. The biggest issues seemed to revolve around the history, performance and holdings of these ETFs. It is also important to understand the nature of the index and/or strategy that the ETF seeks to replicate, as well as the timing and methodology used to rebalance the ETFs. For each of the six aforementioned strategy-in-a-box ETFs, I have therefore also included links to a profile/summary page; the prospectus; a current list of holdings; the Morningstar performance data; and the StockCharts gallery chart:

As noted on Sunday, all but LSC have at least two years of a track record. Normally I would not consider this to be a long time, but given that it covers both strong bull and bear markets, I believe it is an appropriate time period from which to draw some conclusions. Perhaps more interesting is the rebalance period, where quarterly rebalancing seems to be the norm. I have spent a fair amount of time playing with various rebalancing methods and at least in my experience, I find it difficult to gain a meaningful edge with quarterly rebalancing.

Finally, it looks as if the strategy-in-a-box moniker is here to stay. I guess it is just a matter of time before I roll out screw top, synthetic cork and real cork strategies. Perhaps then we can turn our attention to the next dimension, Jeroboam, Methuselah and Nebuchadnezzar strategies…

[For all of you who think I may be spending too much time near the fermentation tanks, it was only two years ago that my weekly volatility analysis came with a wine pairing…]

Sunday, October 18, 2009

Chart of the Week: Strategy-in-a-Box ETFs

With interest growing in actively managed ETFs, there is another category of ETFs (and ETNs) out there which I believe has been unfairly overlooked by most investors. I do not have a name for these ETFs, but rather than represent asset classes, sectors, geographies, and other typical ETF constructs, they seek to replicate specific investment strategies. Until someone tags them with a better name, I am going to call them strategy-in-a-box ETFs.

Depending upon how you define the strategy-in-a-box concept, you can find various ETFs that may or may not conform to that definition, but six that clearly fit the profile, have attracted some investor interest and that I try to monitor are:

  • Elements S&P CTI ETN (LSC) – a long-short commodity technical momentum ETF
  • Claymore/Sabrient Insider ETF (NFO) – targets companies where there are favorable corporate insider buying trends and recent earnings estimate increases by Wall Street analysts
  • PowerShares DWA Technical Leaders (PDP) – focuses on companies exhibiting strong relative strength as measured by Dorsey Wright & Associates Technical Leaders Index
  • PowerShares Value Line Industry Rotation (PYH) – is based on the Value Line Industry Rotation Index, which is derived from Value Line’s measure of stock timeliness and industry timeliness
  • PowerShares Value Line Timeliness Select (PIV) – unlike the ETF above, utilizes three core Value Line ranking systems that incorporate timeliness, technical ranking and safety
  • Claymore/Zacks Country Rotation (CRO) – which attempts to track the Zacks Country Rotation Index

What can you do with this motley group of ETFs? For starters, since all have been around for at least 15 months (all but LSC for more than two years), you can see how some of these strategies have worked in real-time bull and bear market conditions. For instance, if you just happened to get bullish on March 9th, which of the above ETFs would have provided the best returns? The chart of the week below shows that the Claymore/Sabrient Insider ETF (NFO) has led the pack, more than doubling over the course of the past seven plus months. The second best performer has been CRO, the Claymore/Zachs Country Rotation ETF. The PowerShares DWA Technical Leaders (PDP) has returned about the same as the SPX during the bull market. Interestingly, the Elements S&P CTI ETN (LSC) has actually lost money during the strong bull market in stocks.

I will have more to say about these ETFs and about their actively managed ETF cousins going forward. In the meantime, feel free to suggest a better name than strategy-in-a-box…

[source: StockCharts]

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