I think this misses a big big point about how ETFs tie into a portfolio. An ETF captures some sort of effect. That effect is either in favor now or it is not. It makes no sense, for example to have your entire portfolio in five different mid-cap growth ETFs. Having one might make sense. Chances are if you do have one it is the one you think is the best one for that effect. It being the best one does change when the group rotates out of favor. As having nothing but mid-cap growth ETFs is not a good idea neither is having only dividend weighted ETFs.
However you assemble your portfolio you would logically own what you think is the best vehicle for each part of the market. If you are diversified you should expect some things to be doing well and some things not doing so well. Your success depends on the blend of strong and weak performers.
The other day I put up a post in response to a reader question about what parts of the market might weather a US collapse better than others. In that post I specifically mentioned US stocks with high dividends might not offer much shelter. That post was picked up by Seeking Alpha (I linked to the SA version for this purpose) and drew a comment from Seeking Alpha contributor Geoff Considine that said he thinks KO would be an example of a good place to hide because it has a high yield and by his work a 0.36 correlation to the S&P 500-so he is taking the other side of my point, fair enough, this makes for a good debate.
I am a fan of looking at correlations to assemble portfolios but I think it is easy to get too wrapped up in the data. Sometimes a real world check is better than data.
This chart compares KO to the S&P 500 from July 1, 2000 to December 31, 2002. You can see for yourself how KO did. To repeat a thought from before, how much solace is a 3% dividend (or whatever KO paid back then) in the face of a 25% decline?
The context of the original question was trying to avoid a collapse, I don't think this holds up but you should decide for yourself. You can link through to the SA post to read Geoff's full question and then his reply to my reply and even read his article he referenced in both of his comments if you are so inclined; I did not read his article.
7 comments:
Agreed. I used to do a lot of report constructions with raw data. I learned to always look at the chart for confirmation. Nothing like an eyeball visual for the human computer to digest. Speaking of correlations. Can you generate a longterm chart of the correlations between domestic: developed ex us and domestic:undeveloped mkts over time? Are we entering a long term trend of low correlations? Are, despite claims to the contrary, global multinational mega cap gong to be a place to hide?
If "undeveloped mrts" = Emerging markets, and "developed ex us" = EAFE, I believe this chart is what you wanted:
http://finance.yahoo.com/charts#chart7:symbol=^gspc;range=5y;compare=eem+efa;charttype=line;crosshair=on;logscale=on;source=
I take anon yo be asking about a chart of corelation. You can click here for TomK's chart which shows price performance. for charting the actual correlation I am not aware of anything.
While I do not think a collapse is coming the reader asks if global (US?) multinationals could hold up. yes they could of course but in the few instances of real panic in the US they have not really done well, as a group-here I am talking about the US globals.
Part of my thought process behind the original post were about trying to explore where money might flow to.
Yes, not price comparison charts, but correlational ebb and flow. My sense is that there are periods the domestic mkt has been fairly correlated with foreign mkts, but less so in recent years. And, while emerging mkts have shown the most divergence, positive divergence has historically been short lived. EEM does not have enough historical data to show this. Could a long term historical view of international mkts' relationship to our mkts reveal a case that the leadership of these international mkts has broken a trend and that the current momentum can be sustained for a long period of time? Emerging mkts may look extended now, but the longer money stays on the side the more disappointed it will be about finding an entry?????
I think it would be a mistake to focus solely on charts, correlations and other technical investment data and forget that political, quasi-political, religious and military realities are going to be important cogs in the wheel of investment performance for the foreseeable future.
I am invested globally. I believe that all serious investors should invest globally.If one follows US and foreign military contracts,military deployments worldwide by competitive nations, diplomatic initiatives, the rise of dysfunctional dictatorships and the continued neutering of the EU, it is possible to have an edge not achieved by many too busy plotting eclectic technical hypotheticals to the exclusion of everything else.
Roger is now Jim Cramer's bitch. Notice the direction he is taking this blog and how it has become the pump grounds for ETFs and more BS Wall Street products. Just like he pumped up the bearish talk all year and was dead WRONG!! Roger is compromised and shouldn't be trusted. He does not tell the truth.
You must be short this market as we are all up 15% ytd. Heres to you losses character.
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