Wikinvest Wire
Sunday, December 31, 2006
Sector Smackdown
A reader asked which sector funds I prefer; the iShares S&P Global funds or the WisdomTree foreign sector funds.
I use a couple of sector ETFs broadly and some accounts own quite a few sector ETFs as a function of account size or tolerance for single stock volatility.
Well, one family is not better than the other. Each of the two do something that is a little different than the other. The iShares line combines foreign and domestic with some of the funds having a lot of domestic and some others having a lot of foreign. The WisdomTree line is all foreign and by virtue of the dividend weighting it seems that all the funds skew to certain countries like the UK and Australia.
If you want to build your portfolio by sector and want to capture any sectors using an ETF I think you need to look at all the families to find the best one for your portfolio which includes the sector SPDRs, the iShares domestic, the equal weights, the PowerShares sector funds, some of the strays like First Trust and some of the themed funds that could be proxies for sectors.
Doing this requires looking under the hood. Does a given fund have too much in one stock (a stock you don't like)? Does the fund tilt too far in favor of a particular sub-sector? Is a particular sector a better place to add foreign or domestic? What about yield, volatility or country makeup?
The point here is probably that selecting an ETF takes work. There is possibly less work involved than selecting a stock and there might be less risk than a stock but an ETF or other product is not a green light to take short cuts.
Read more!
I use a couple of sector ETFs broadly and some accounts own quite a few sector ETFs as a function of account size or tolerance for single stock volatility.
Well, one family is not better than the other. Each of the two do something that is a little different than the other. The iShares line combines foreign and domestic with some of the funds having a lot of domestic and some others having a lot of foreign. The WisdomTree line is all foreign and by virtue of the dividend weighting it seems that all the funds skew to certain countries like the UK and Australia.
If you want to build your portfolio by sector and want to capture any sectors using an ETF I think you need to look at all the families to find the best one for your portfolio which includes the sector SPDRs, the iShares domestic, the equal weights, the PowerShares sector funds, some of the strays like First Trust and some of the themed funds that could be proxies for sectors.
Doing this requires looking under the hood. Does a given fund have too much in one stock (a stock you don't like)? Does the fund tilt too far in favor of a particular sub-sector? Is a particular sector a better place to add foreign or domestic? What about yield, volatility or country makeup?
The point here is probably that selecting an ETF takes work. There is possibly less work involved than selecting a stock and there might be less risk than a stock but an ETF or other product is not a green light to take short cuts.
Read more!
Saturday, December 30, 2006
Tidbits Over Coffee
Our friends Russell and Michelle have been visiting from Fresno for the last few days and are headed out this afternoon so the video will come later than normal. Russ was my best man when Joellyn and I got married in 1993.
The market will be closed four days in a row; all of Pisani's chatter about this notwithstanding it is a nice break.
Barron's has some great stuff this week. There was some content about WisdomTree's progress so far. The more I think about it the more I think what they are doing will lead to a lot more innovation throughout the industry as a function of needing to compete.
Barron's also had a bit on the India ETN (INF) and what you know, Sonya Morris from Morningstar didn't have anything good to say. She feels India has had its run. Great but a diversified portfolio combines stuff that has had its run and stuff that hasn't run yet. India has run and healthcare hasn't. Couldn't India keep running and couldn't healthcare not run again? Do you have be 100% right to have success?
The Current Yield column had some predictions for the yield on the ten year treasury. I am not part of what appears to be a four handle-consensus. I am hoping for a growth spurring steepening of the curve which could mean the mid fives to low sixes at some point in the near future. I don't think we avoid a normal recession (as I have been saying all along) but if it comes it will end and then we will grow by some measure. I'm not sure why more people don't hope for normal.
The Asia Trader column cited a consensus for another great year for emerging markets in 2007. As I noted in last week's video a year of less than world beating growth would not be a surprise. Emerging markets strikes me as being prone to an over optimistic consensus. In my time in the business I can't seem to recall the consensus ever correctly calling a turn. The long term big macro is alive and well as far as I am concerned but a year of cooling off would be far from the worst thing that could happen. Please don't add 2+2 here and get 22 as this is not a call to go to zero weight but if you are wildly overweight you may want to reexamine.
The Interview was also about emerging markets, with Arjun Divecha from GMO. He noted that five years ago emerging market PEs were nine vs 13 today. He says lower rates have contributed to the success of the last few years (oops, excess liquidity issue?). His favorite country is Taiwan and he also likes Thailand, Brazil and Korea.
More later this weekend.
Read more!
The market will be closed four days in a row; all of Pisani's chatter about this notwithstanding it is a nice break.
Barron's has some great stuff this week. There was some content about WisdomTree's progress so far. The more I think about it the more I think what they are doing will lead to a lot more innovation throughout the industry as a function of needing to compete.
Barron's also had a bit on the India ETN (INF) and what you know, Sonya Morris from Morningstar didn't have anything good to say. She feels India has had its run. Great but a diversified portfolio combines stuff that has had its run and stuff that hasn't run yet. India has run and healthcare hasn't. Couldn't India keep running and couldn't healthcare not run again? Do you have be 100% right to have success?
The Current Yield column had some predictions for the yield on the ten year treasury. I am not part of what appears to be a four handle-consensus. I am hoping for a growth spurring steepening of the curve which could mean the mid fives to low sixes at some point in the near future. I don't think we avoid a normal recession (as I have been saying all along) but if it comes it will end and then we will grow by some measure. I'm not sure why more people don't hope for normal.
The Asia Trader column cited a consensus for another great year for emerging markets in 2007. As I noted in last week's video a year of less than world beating growth would not be a surprise. Emerging markets strikes me as being prone to an over optimistic consensus. In my time in the business I can't seem to recall the consensus ever correctly calling a turn. The long term big macro is alive and well as far as I am concerned but a year of cooling off would be far from the worst thing that could happen. Please don't add 2+2 here and get 22 as this is not a call to go to zero weight but if you are wildly overweight you may want to reexamine.
The Interview was also about emerging markets, with Arjun Divecha from GMO. He noted that five years ago emerging market PEs were nine vs 13 today. He says lower rates have contributed to the success of the last few years (oops, excess liquidity issue?). His favorite country is Taiwan and he also likes Thailand, Brazil and Korea.
More later this weekend.
Read more!
Friday, December 29, 2006
Happy New Year!
This won't be a market related post per se but just a thank you to readers of this site for a great year. It amuses me to no end that there is any interest at all in my ramblings here and elsewhere.
I get tremendous enjoyment from the idea that I get to help some people learn a little more about investing and I also learn quite a bit back from reader comments.
2006 was a great year for me personally and the success of the blog contributed to the year. I hope 2007 will also be a good year. Good does not mean the market has to go up, here I am thinking about balance in our lives. Not sure if it comes through the blog or not but I spend a lot of time on my work but I have other interests. Spending too much time on any one thing is not ideal. I have other interests and hopefully you do too!
It is an easy bet that 2007 could have more innovative products come out that allow do-it-yourselfers to have an ever better chance for success with their portfolios in the shorter run hopefully leading to reaching long term goals. Remember beating the market by 2% this year (if that is what you did) means nothing if you are investing for any type of long term goal. Chances are five years from now you won't remember exactly how you did in 2006.
Thank you again for 2006 and I hope you'll continue to stick with this blog in 2007 as well. Happy New Year!
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I get tremendous enjoyment from the idea that I get to help some people learn a little more about investing and I also learn quite a bit back from reader comments.
2006 was a great year for me personally and the success of the blog contributed to the year. I hope 2007 will also be a good year. Good does not mean the market has to go up, here I am thinking about balance in our lives. Not sure if it comes through the blog or not but I spend a lot of time on my work but I have other interests. Spending too much time on any one thing is not ideal. I have other interests and hopefully you do too!
It is an easy bet that 2007 could have more innovative products come out that allow do-it-yourselfers to have an ever better chance for success with their portfolios in the shorter run hopefully leading to reaching long term goals. Remember beating the market by 2% this year (if that is what you did) means nothing if you are investing for any type of long term goal. Chances are five years from now you won't remember exactly how you did in 2006.
Thank you again for 2006 and I hope you'll continue to stick with this blog in 2007 as well. Happy New Year!
Read more!
Thursday, December 28, 2006
Blowing Off?
I don't know.This chart is just a one month look and it is up 20 points. Zoiks.
I have owned this one personally for a long time and admit I don't know what to make of this.
One thing I have mentioned several times before is that in a given quarter you don't necessarily know where "alpha" will come from but if you are diversified you don't need to know ahead of time.
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Tidbits
A couple of good comments came in on the post about T's portfolio and there were a couple that came in on the post for Randall Forsyth's ETF portfolio too. Some thought they each looked good and some offered critique for possible tweaks.
This circles back to an important notion I have tried to convey about how do-it-yourself investors develop their own process by taking little bits from many different places. It is unlikely that T's portfolio, although ideal for him, is ideal for you but it is likely that you picked up at least one useful nugget from what he is doing.
One reader asked for OEF and ETF names for any frontier markets. There are no ETFs that I am aware of for real frontier markets-I don't think of South Africa (EZA) as frontier. I don't think of Russia as being frontier either but there are a couple of CEFs that focus on Russia with some other Eastern European exposure; CEE and TRF.
One OEF that might fit the bill is from T Rowe Price with ticker TREMX. It is supposed to invest in the region but it looks very top heavy to Russia. Anyone can feel free to leave other ticker symbols as I am sure there are others.
Is it me or are bears getting harder to find? I have no idea if a major turn is coming but I do know that when the next one comes very few people will see it coming.
Read more!
This circles back to an important notion I have tried to convey about how do-it-yourself investors develop their own process by taking little bits from many different places. It is unlikely that T's portfolio, although ideal for him, is ideal for you but it is likely that you picked up at least one useful nugget from what he is doing.
One reader asked for OEF and ETF names for any frontier markets. There are no ETFs that I am aware of for real frontier markets-I don't think of South Africa (EZA) as frontier. I don't think of Russia as being frontier either but there are a couple of CEFs that focus on Russia with some other Eastern European exposure; CEE and TRF.
One OEF that might fit the bill is from T Rowe Price with ticker TREMX. It is supposed to invest in the region but it looks very top heavy to Russia. Anyone can feel free to leave other ticker symbols as I am sure there are others.
Is it me or are bears getting harder to find? I have no idea if a major turn is coming but I do know that when the next one comes very few people will see it coming.
Read more!
Wednesday, December 27, 2006
The Right Portfolio?
T, the author of Investing From the Right has a post up disclosing his portfolio, and he asked for my two cents.
Here is what he calls the permanent portion of the portfolio;
Bank of Nova Scotia (BNS)
Chesapeake Energy (CHK)
ETF: Claymore Dividend Hogs (CVY)
ETF: iShares MSCI Value Fund (EFV)
ETF: iSHARES Switzerland (EWL)
ETF: Powershares Dynamic Buyback Portfolio (PKW)
ETF: Claymore Water Resources (PHO)
Energy Transfer Partners, LP (ETP)
First Horizon Bank (FHN)
Fortune Brands (FO)
MDU Resources (MDU)
Smithfield Foods (SFD)
Verizon (VZ)
Goodrich (GR)
This next grouping is the speculative portion which makes up 30% of his equity allocation;
Allied Waste (AW)
British Aerospace (BEAV)--if BEAV is the right ticker, the name is BE Aerospace
Converium Insurance, Switzerland(CHR)
Donegal Insurance (DGICA)
ETF: Claymore Bric- Brazil,Russia,India,China (EEB)
ETF: iShares Japan (EWJ)
ETF: iShares Singapore (EWS)
ETF: Powershares Oil and Gas Service Companies(PXJ)
Cheniere Energy (LNG)
L3-Communications (LLL)
WellCare Health Plans (WCG)
United Technologies (UTX)
The important thing is that the mix moves in such a way to help T have a chance to get to where he wants to be and does not cause too much anguish during normal corrections. That I view portfolio construction differently than T does probably does not mean much.
At first glance he seems very top heavy in financials; CVY 37%, EFV, 39%, EWL 24%, PKW 15% plus the position in FHN, BNS, CHR and the weightings in some of the "speculative" ETFs. Healthcare looks very light; EWL has a lot and there is the position in WCG. Industrials look about right or maybe a little heavy (tough to know because weightings for each position were not given) with UTX, BEAV, AW, LLL, GR and PHO. There is almost no tech, although Singapore does benefit from technology exports. Telecom and utilities might be about right with VZ and MDU and some of the ETF exposure.
Energy is well represented with CHK, PXJ, LNG, ETP and whatever might be in the ETFs. The consumer sectors are very underweight. Materials look to be close to zero, Brazil is covered in EEB but that fund is only 12% materials.
There is plenty of foreign exposure and what appears to be a huge bias to value. The big weighting in financials is common when so many products are used. I wonder how volatile the energy names might turn out to be. The other thing that just occurred to me is there might be a large cap bias.
I did not plug the portfolio into any software as the weights were not given, but if they were it would have been a very time consuming task. Most of this was just eyeballing the list so I certainly may have a few things wrong. All portfolios have issues that may or may not be flaws and while I am not trying to be harsh it does T no good for me to just validate every aspect with no real critique.
Lastly, BNS, CVY, PHO, VZ and UTX are either client or personal holdings.
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Here is what he calls the permanent portion of the portfolio;
Bank of Nova Scotia (BNS)
Chesapeake Energy (CHK)
ETF: Claymore Dividend Hogs (CVY)
ETF: iShares MSCI Value Fund (EFV)
ETF: iSHARES Switzerland (EWL)
ETF: Powershares Dynamic Buyback Portfolio (PKW)
ETF: Claymore Water Resources (PHO)
Energy Transfer Partners, LP (ETP)
First Horizon Bank (FHN)
Fortune Brands (FO)
MDU Resources (MDU)
Smithfield Foods (SFD)
Verizon (VZ)
Goodrich (GR)
This next grouping is the speculative portion which makes up 30% of his equity allocation;
Allied Waste (AW)
British Aerospace (BEAV)--if BEAV is the right ticker, the name is BE Aerospace
Converium Insurance, Switzerland(CHR)
Donegal Insurance (DGICA)
ETF: Claymore Bric- Brazil,Russia,India,China (EEB)
ETF: iShares Japan (EWJ)
ETF: iShares Singapore (EWS)
ETF: Powershares Oil and Gas Service Companies(PXJ)
Cheniere Energy (LNG)
L3-Communications (LLL)
WellCare Health Plans (WCG)
United Technologies (UTX)
The important thing is that the mix moves in such a way to help T have a chance to get to where he wants to be and does not cause too much anguish during normal corrections. That I view portfolio construction differently than T does probably does not mean much.
At first glance he seems very top heavy in financials; CVY 37%, EFV, 39%, EWL 24%, PKW 15% plus the position in FHN, BNS, CHR and the weightings in some of the "speculative" ETFs. Healthcare looks very light; EWL has a lot and there is the position in WCG. Industrials look about right or maybe a little heavy (tough to know because weightings for each position were not given) with UTX, BEAV, AW, LLL, GR and PHO. There is almost no tech, although Singapore does benefit from technology exports. Telecom and utilities might be about right with VZ and MDU and some of the ETF exposure.
Energy is well represented with CHK, PXJ, LNG, ETP and whatever might be in the ETFs. The consumer sectors are very underweight. Materials look to be close to zero, Brazil is covered in EEB but that fund is only 12% materials.
There is plenty of foreign exposure and what appears to be a huge bias to value. The big weighting in financials is common when so many products are used. I wonder how volatile the energy names might turn out to be. The other thing that just occurred to me is there might be a large cap bias.
I did not plug the portfolio into any software as the weights were not given, but if they were it would have been a very time consuming task. Most of this was just eyeballing the list so I certainly may have a few things wrong. All portfolios have issues that may or may not be flaws and while I am not trying to be harsh it does T no good for me to just validate every aspect with no real critique.
Lastly, BNS, CVY, PHO, VZ and UTX are either client or personal holdings.
Read more!
Tuesday, December 26, 2006
Another Biotech Blowup
You know the news by now.What is strange about this is that so many people saw this coming including Adam Warner.
Maybe this is anecdotal evidence that the market is
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Randall Forsyth's ETF Portfolio
Randall Forsyth was on the Consuelo Mack show on PBS and offered the following all ETF portfolio.
Total Stock (VTI)
MSCI EAFE (EFA)
Emerging Market (EEM)
REIT (VNQ)
Aggregate Bond (AGG)
No percentages were given.
This is a very typical type of mix we see put forth. If you have been reading this site for any length of time you might guess I am not a huge fan of this simple of a mix. I would encourage anyone wanting to manage their own portfolio without making it a full time job to explore a few things than just five ETFs.
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Total Stock (VTI)
MSCI EAFE (EFA)
Emerging Market (EEM)
REIT (VNQ)
Aggregate Bond (AGG)
No percentages were given.
This is a very typical type of mix we see put forth. If you have been reading this site for any length of time you might guess I am not a huge fan of this simple of a mix. I would encourage anyone wanting to manage their own portfolio without making it a full time job to explore a few things than just five ETFs.
Read more!
Boxing Day
A reader left a comment asking for my take on the Access Flex Bear High Yield Inverse Fund (AFBIX) as hedge. Assuming it does what it is supposed to do (you need to check this out for yourself if you are interested in the fund) I have to wonder how many do-it-yourselfers have enough high yield exposure that it needs to be hedged. Yield spreads between high yield and treasuries are very low which makes going heavy in high yield relatively risky these days.
That this type of product exists is a good thing and given how narrow spreads are it might make for a good speculation--again if it does what it is supposed to do, which I have not checked.
Another reader asked me what I thought of the Currency Harvest ETF (DBV) as a tool in an enhanced indexing trade. Here I think the reader means (very simplified version coming here) that if you have $100,000 you buy enough futures contracts to synthesize a $100,000 equity portfolio and put whatever is left over into something that pays interest. In theory the returns beat the S&P 500.
He asks if believe the back test, I do and I own the fund but I view the fund as an aggressive cash position, it can go down in value. The idea of using a foreign currency in this type of trade is very appealing to me in an academic sense which might be to say I probably would not do the trade but some combo of SPX futures and a high yielding currency that has a shot of going up against the dollar sounds like a packed product waiting to happen. I had never thought about this before but I really am intrigued so thank you to the reader!
I just left a post on RealMoney about this week being slow but there probably being a lot of Outlook 2007 pieces which could be a great chance to learn process.
Read more!
That this type of product exists is a good thing and given how narrow spreads are it might make for a good speculation--again if it does what it is supposed to do, which I have not checked.
Another reader asked me what I thought of the Currency Harvest ETF (DBV) as a tool in an enhanced indexing trade. Here I think the reader means (very simplified version coming here) that if you have $100,000 you buy enough futures contracts to synthesize a $100,000 equity portfolio and put whatever is left over into something that pays interest. In theory the returns beat the S&P 500.
He asks if believe the back test, I do and I own the fund but I view the fund as an aggressive cash position, it can go down in value. The idea of using a foreign currency in this type of trade is very appealing to me in an academic sense which might be to say I probably would not do the trade but some combo of SPX futures and a high yielding currency that has a shot of going up against the dollar sounds like a packed product waiting to happen. I had never thought about this before but I really am intrigued so thank you to the reader!
I just left a post on RealMoney about this week being slow but there probably being a lot of Outlook 2007 pieces which could be a great chance to learn process.
Read more!
Sunday, December 24, 2006
Christmas Eve Tidbits
Barron's had a couple of very dark things this week. First Marc Faber had this comment in the context of the Thai baht episode from earlier this week; "Excess liquidity has created huge imbalances and economic distortions that one day will have to be corrected, and I am afraid not in a pleasant way."
This got me thinking and then I read the cover story which gave a pro and con (not being sarcastic, I thought they did balance it out) as to whether the US will give way economically under pressure from the various deficits and imbalances. From the cover story; "Warren Buffett, for one, argues that America is well on its way to becoming a sharecropper society -- hocking its family jewels to finance insensate consumption." Merry Christmas?
A lot of liquidity was created a few years ago, an awful lot. There are arguments on both sides as to whether this was excessive or not and then even amongst the folks who do agree it was excessive there are different schools of thought as to what the consequences will be.
To be crystal clear, and I have thought this for a while, if there are to be any consequences from the liquidity created they will merely be disruptive not devastating. I do not think the dollar will cut in half from here, I don't think interest rates will go to where they were in the early 1980's and it will not mean the end of the American way. My idea of disruptive would be yields in the nines, give or take, maybe a 15% hit in the dollar and some other things that are clearly uncomfortable but not catastrophic...if it even happens at all.
Here's the thing. If the end is nigh crowd turns out to be correct we will all be hurt to some degree. If Kudlow is right, no one gets hurt. Therefore spending time on the everything's-coming-up-roses outcome is a complete waste of time. "The greatest story never told" does not hurt me, my money, my clients' money, you or your money.
I think it behooves anyone to spend time on the ideas that make Dr. Roubini look like a Kudlowite and think about how you would diversify in the face of something horrible. If you are diversified now this probably means just increasing exposure you already have.
Again, I do not think Armageddon is coming, not even close but I want to understand the things that could be harmful.
New subject; reader Sami left a great question on my prediction video. He says he understands my comment that if the market goes up 20% next year I think I will be close but he asks if I am right about negative 3-4% will Ibe close to that and is that ok?
The portfolio as it is constructed is, I think, built for success in down a little. On Friday the S&P 500 was down 0.53% according to Yahoo Finance. The generic portfolio I maintain on Yahoo Finance was down 0.17% on the day. I am overweight cash, underweight tech (and by extension underweight beta) and have a yield that is close to 3%. Most client accounts have exposure to 8-12 foreign countries; the odds are one or two of them will be up a lot (although I may not be able to predict which one or two those might be), maybe more. I still have the now smaller position in the double short ETF.
I think Friday could be a microcosm, in fact a 30-40 basis beat on down days like Friday have been common for the last six months and 15-25 basis point lags happen on days the market does really well. FWIW days with very small moves could be beats or lags with no real predictability.
Further, if the dollar declines I would probably get a boost from that too. So to answer the question I hope I am structured to be up a little if the market is down a little. Obviously this may or may not be successful but this is my game plan for now.
Read more!
This got me thinking and then I read the cover story which gave a pro and con (not being sarcastic, I thought they did balance it out) as to whether the US will give way economically under pressure from the various deficits and imbalances. From the cover story; "Warren Buffett, for one, argues that America is well on its way to becoming a sharecropper society -- hocking its family jewels to finance insensate consumption." Merry Christmas?
A lot of liquidity was created a few years ago, an awful lot. There are arguments on both sides as to whether this was excessive or not and then even amongst the folks who do agree it was excessive there are different schools of thought as to what the consequences will be.
To be crystal clear, and I have thought this for a while, if there are to be any consequences from the liquidity created they will merely be disruptive not devastating. I do not think the dollar will cut in half from here, I don't think interest rates will go to where they were in the early 1980's and it will not mean the end of the American way. My idea of disruptive would be yields in the nines, give or take, maybe a 15% hit in the dollar and some other things that are clearly uncomfortable but not catastrophic...if it even happens at all.
Here's the thing. If the end is nigh crowd turns out to be correct we will all be hurt to some degree. If Kudlow is right, no one gets hurt. Therefore spending time on the everything's-coming-up-roses outcome is a complete waste of time. "The greatest story never told" does not hurt me, my money, my clients' money, you or your money.
I think it behooves anyone to spend time on the ideas that make Dr. Roubini look like a Kudlowite and think about how you would diversify in the face of something horrible. If you are diversified now this probably means just increasing exposure you already have.
Again, I do not think Armageddon is coming, not even close but I want to understand the things that could be harmful.
New subject; reader Sami left a great question on my prediction video. He says he understands my comment that if the market goes up 20% next year I think I will be close but he asks if I am right about negative 3-4% will Ibe close to that and is that ok?
The portfolio as it is constructed is, I think, built for success in down a little. On Friday the S&P 500 was down 0.53% according to Yahoo Finance. The generic portfolio I maintain on Yahoo Finance was down 0.17% on the day. I am overweight cash, underweight tech (and by extension underweight beta) and have a yield that is close to 3%. Most client accounts have exposure to 8-12 foreign countries; the odds are one or two of them will be up a lot (although I may not be able to predict which one or two those might be), maybe more. I still have the now smaller position in the double short ETF.
I think Friday could be a microcosm, in fact a 30-40 basis beat on down days like Friday have been common for the last six months and 15-25 basis point lags happen on days the market does really well. FWIW days with very small moves could be beats or lags with no real predictability.
Further, if the dollar declines I would probably get a boost from that too. So to answer the question I hope I am structured to be up a little if the market is down a little. Obviously this may or may not be successful but this is my game plan for now.
Read more!
Saturday, December 23, 2006
Friday, December 22, 2006
Friday
Last night on Kudlow, Lincoln Anderson from LPL made an interesting comment. I am paraphrasing as I was in the car on the way home from the gym; he said that the inverted curve was stimulative on the long end (low rates) and taming inflation on the short end (high rates) and that this was a beautiful thing. I don't really understand this comment and how it can come from someone in his position.
There are plenty of smart folks that are not concerned about the inverted curve and see a soft landing and not a normal recession. OK this is reasonable, I happen to disagree and think expecting something that appears to have only happened twice before (correct me if I am wrong), a soft landing, is a bit of wishful thinking but there could be a soft landing and the cycle could go on for an extended period. But when has an inverted curve been a good thing, let alone a beautiful thing?
Mr. Anderson (sorry I do not know if he is a PHD and should be called doctor) is clearly much smarter than me to be where he is but his comments are such that Larry should have asked about it but alas he did not.
Often when they have these soft landing love fests they never ask anyone from the soft landing crowd when they think the cycle will end, what they will be looking at to tell them when it will end and how they reconcile all of the things occurring now that have triggered the end of past cycles.
The soft landing idea can be valid but I would like to hear more about the questions I have asked here to understand their point better.
A big thanks to Michelle Leder at Footnoted.org for handling a syndication without authorization issue for several blogs.
My buddy Jim, who has a little too much time perhaps, Elfed me at a site called Elfyourself which is an OfficeMax toy.
Read more!
There are plenty of smart folks that are not concerned about the inverted curve and see a soft landing and not a normal recession. OK this is reasonable, I happen to disagree and think expecting something that appears to have only happened twice before (correct me if I am wrong), a soft landing, is a bit of wishful thinking but there could be a soft landing and the cycle could go on for an extended period. But when has an inverted curve been a good thing, let alone a beautiful thing?
Mr. Anderson (sorry I do not know if he is a PHD and should be called doctor) is clearly much smarter than me to be where he is but his comments are such that Larry should have asked about it but alas he did not.
Often when they have these soft landing love fests they never ask anyone from the soft landing crowd when they think the cycle will end, what they will be looking at to tell them when it will end and how they reconcile all of the things occurring now that have triggered the end of past cycles.
The soft landing idea can be valid but I would like to hear more about the questions I have asked here to understand their point better.
A big thanks to Michelle Leder at Footnoted.org for handling a syndication without authorization issue for several blogs.
My buddy Jim, who has a little too much time perhaps, Elfed me at a site called Elfyourself which is an OfficeMax toy.
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Thursday, December 21, 2006
WisdomTree Declares Distributions for ETFs
WisdomTree Trust Declares Distributions for ETFs
In case you were curious.
There was a little confusion about some of the earlier dividends but I stumbled across an easy-ish explanation.
An issue arose when the dividends were smaller than expected, a few months ago. This answer has to do with the growth in assets of the fund.
The example I read (in the ETFReport) went something like this; if the fund owned 1000 shares of Exxon Mobil when XOM went ex-dividend but owned 2000 shares when the dividend paid the fund would have to pay the dividend for the 1000 shares out to 2000 shares now held.
The fund was only entitled to a dividend 1000 shares but growth took the position to 2000 shares.
Put another way if on September 1 the total assets of the fund were $100,000 and every stock went ex-div on that day the fund might take in $1000. If WisdomTree then went ex-dividend on October 1st but by then the assets had grown to $200,000 it would have to pay that $1000 out to all $200,000 in assets.
Maybe it's not that easy.
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In case you were curious.
There was a little confusion about some of the earlier dividends but I stumbled across an easy-ish explanation.
An issue arose when the dividends were smaller than expected, a few months ago. This answer has to do with the growth in assets of the fund.
The example I read (in the ETFReport) went something like this; if the fund owned 1000 shares of Exxon Mobil when XOM went ex-dividend but owned 2000 shares when the dividend paid the fund would have to pay the dividend for the 1000 shares out to 2000 shares now held.
The fund was only entitled to a dividend 1000 shares but growth took the position to 2000 shares.
Put another way if on September 1 the total assets of the fund were $100,000 and every stock went ex-div on that day the fund might take in $1000. If WisdomTree then went ex-dividend on October 1st but by then the assets had grown to $200,000 it would have to pay that $1000 out to all $200,000 in assets.
Maybe it's not that easy.
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Trying To Catch Up
One of our clients is a 401k with multiple participants. They just funded for the year and I have had to implement the new money this week which is as time consuming as it sounds.
So naturally I got a flood of questions on the blog.
First is the ETN/ETF issue. Reader RW left the Investopedia definition that you can read here. I can't really improve on that. As I understand it, the ETN structure makes for friendlier tax treatment for payouts from the ETN as the commodity aspect of the older ETNs would make for unfriendly treatment if they were ETFs and not ETNs.
The last I heard the IRS had not decided but Barclays believes that the ETN structure as a debt instrument does the trick. From a practical day to day standpoint I don't think the fact that it is a debt instrument means much. Barclays (client holding) is unlikely to default on its paper. If you think otherwise then you should not buy any of the ETNs.
As for why the India product is an ETN, I think I read somewhere that it has to do with the foreign ownership restriction of Indian shares but I have not really dug into the product. For my clients that have Indian exposure I use IIF which I have held for more than three years for some folks and so I am very comfortable with it. India is tricky (subjective opinion) and in this case I like the track record provided by the fund. INP might turn out to be the best way to go but I don't feel the need to figure that out on INP's second day of trading.
One last thing on ETNs was a question about whether or not they should be in IRAs for tax reasons. The ETNs each capture a certain effect, commodity, India, whatever. In my opinion you should focus on the effect being captured and not the taxes as a first or even fourth priority. Commodities can be volatile, where do you want that volatility? This is very subjective and I know taxes are the first priority for a lot of people but that is just not how I view it.
A reader asked for my opinion on BLDRs Asia ADR 50 Fund (ADRA). Based on the comment I'm not sure exactly what he was asking but the fund is 60% Japan, I have no interest in owning Japan, something I have been saying since the start of this site. My Asia exposure includes China, Vietnam, Taiwan (in just a couple of instances) and Australia (Oz is its own continent but seems to lumped in with various pan-Asia investment products).
The last thing was a question about distortions on charts caused by large ex-dividend reductions. It seems like the free chart sites (which is what I use) don't usually smooth it out properly. If you have to have undistorted charts you will probably need to pay for it. Sometimes the free sites do account for this properly but I don't feel like I can rely on them to do this. I don't pay up for charting as I use charts more to help confirm as opposed to driving the bus.
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So naturally I got a flood of questions on the blog.
First is the ETN/ETF issue. Reader RW left the Investopedia definition that you can read here. I can't really improve on that. As I understand it, the ETN structure makes for friendlier tax treatment for payouts from the ETN as the commodity aspect of the older ETNs would make for unfriendly treatment if they were ETFs and not ETNs.
The last I heard the IRS had not decided but Barclays believes that the ETN structure as a debt instrument does the trick. From a practical day to day standpoint I don't think the fact that it is a debt instrument means much. Barclays (client holding) is unlikely to default on its paper. If you think otherwise then you should not buy any of the ETNs.
As for why the India product is an ETN, I think I read somewhere that it has to do with the foreign ownership restriction of Indian shares but I have not really dug into the product. For my clients that have Indian exposure I use IIF which I have held for more than three years for some folks and so I am very comfortable with it. India is tricky (subjective opinion) and in this case I like the track record provided by the fund. INP might turn out to be the best way to go but I don't feel the need to figure that out on INP's second day of trading.
One last thing on ETNs was a question about whether or not they should be in IRAs for tax reasons. The ETNs each capture a certain effect, commodity, India, whatever. In my opinion you should focus on the effect being captured and not the taxes as a first or even fourth priority. Commodities can be volatile, where do you want that volatility? This is very subjective and I know taxes are the first priority for a lot of people but that is just not how I view it.
A reader asked for my opinion on BLDRs Asia ADR 50 Fund (ADRA). Based on the comment I'm not sure exactly what he was asking but the fund is 60% Japan, I have no interest in owning Japan, something I have been saying since the start of this site. My Asia exposure includes China, Vietnam, Taiwan (in just a couple of instances) and Australia (Oz is its own continent but seems to lumped in with various pan-Asia investment products).
The last thing was a question about distortions on charts caused by large ex-dividend reductions. It seems like the free chart sites (which is what I use) don't usually smooth it out properly. If you have to have undistorted charts you will probably need to pay for it. Sometimes the free sites do account for this properly but I don't feel like I can rely on them to do this. I don't pay up for charting as I use charts more to help confirm as opposed to driving the bus.
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ETF Duplication
I remember being a tad confused by PowerShares' listing of two different product lines of sector ETFs. One is in conjunction with Rob Arnott's fundamental indexing and the other is the Intellidex method that has generally been successful.I would be hard pressed to explain the difference without just BS-ing you.
The chart compares financial sector ETFs; the Arnott version (PRFF), the Intellidex version (PFI) and the Financial Sector SPDR (XLF). You can decide for yourself whether performance difference is enough to matter.
There are some composition difference which is a bit of a surprise to me. I figured Citigroup, Bank of America (client holding) and JP Morgan would be the top three holdings in each fund. Well that is the case with XLF, actually AIG is number three and JP Morgan is number four. PRFF is similar with C, BAC and JPM as the top three but with smaller weights than in XLF. PFI is unique in that none of the megacaps are in the top ten but BAC is close. Maybe the reduced mega cap exposure is what has caused it to lag in the last few months.
PFI's average market cap is $21 billion and for PRFF it is $76 billion. I am not sure the Intellidex method will allow for the market cap to ever be like the other funds, if not then it will always look different which might be a good thing.
For now the market does not care about these; the average volume for PFI is 7300 shares and for PRFF it is 996 (that is not a typo). I was not able to find info about how much is invested in these funds but it is probably not much.
For what its worth the Rydex Equal Weight Financial Fund (RYF), which I think is the newest sector product, averages 32,000 shares traded. This is probably because it really does capture something different or at least that is the perception created. I could not find the average market cap of RYF on the Rydex site but I would not be surprised if it was similar to PFI.
I have been of the opinion all along that there would be a lot of funds that don't bring a lot to the table and for now it looks like PFI and PRFF should be added to that list. It makes sense to look under the hood a little bit as was done here but I don't see these adding much value now.
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Wednesday, December 20, 2006
Stupid Busy
This was a crazy morning.
I got an email from a stranger, I guess a blog reader but I don't know, that hit on our President's wish that we shop more. Even my wife, who has learned to tune out 9 hours of daily stock market television heard that one. Would any staunch republicans agree that was a weird one?
A reader pointed out the India ETN (as opposed to ETF) started trading today with ticker INP. I knew this and forgot about it, the thing yesterday really does have me running three hours behind. I'll have more about this later but I am surprised to see energy has a 16% weight in the fund.
Lastly a lot of ETFs went ex-divided for some very big payouts today and it looks like most of the quote websites have not fully accounted for this yet.
Read more!
I got an email from a stranger, I guess a blog reader but I don't know, that hit on our President's wish that we shop more. Even my wife, who has learned to tune out 9 hours of daily stock market television heard that one. Would any staunch republicans agree that was a weird one?
A reader pointed out the India ETN (as opposed to ETF) started trading today with ticker INP. I knew this and forgot about it, the thing yesterday really does have me running three hours behind. I'll have more about this later but I am surprised to see energy has a 16% weight in the fund.
Lastly a lot of ETFs went ex-divided for some very big payouts today and it looks like most of the quote websites have not fully accounted for this yet.
Read more!
I Knew Nothing!
I wrote over the weekend about huge option premiums in Newfield Labs warning of a big move in either direction.
I did not know anything about the company or what was in the pipeline just that the option premium was stupid big, warning of something.
I have written a couple of times in the past that looking at the options market, even if you are not an options trader, can offer some utility.
I think NFLD's thing was a blood substitute. Well who wouldn't warm up to that kind of product? I know I would be a sucker for that kind story, I love a good story.
The premiums chronicled over the weekend were saying something. As I really knew nothing about the stock but the options premiums were saying something to people that would listen. My take was to stay away. My guess was not a big drop, my guess was a big move. Guessing that there could be a big move was easy based on the premiums. This was a great lesson for how useful options can be, again, even for people that don't trade them.
The chart may be tough to see but it captures the stock's decline in the last few days. Something like this will happen again and again. When it does, heed it.
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Crap Crap
We have had snow and yesterday on the way back from the gym an uninsured driver slid into the side of my Tundra. The story gets complicated from there but there may be no tracking him down. He left before the sheriff got there. There are more moving parts than that but that's enough of that.
This image is from the Thailand Stock Exchange after the close last night. As you can see it closed much higher in an effort to recover from the crash on Tuesday.
The market behavior with this crash is like most crashes that have occurred before, even if the duration seems a little shorter. Crashes are panics that often snap back in short order, maybe not one day short order but crashes are not the end of the world.
This is constructive because there is a reasonable chance that you will endure a crash in our market at some point in your life (not a prediction just a reality of markets). History shows selling into the panic of a crash is a bad move. I write something similar like this every so often because it is worth thinking about now while you are probably feeling pretty good about the market and can think about it without any emotion.
Short post, the time spent waiting for the sheriff has me a couple of hours behind in the stuff I usually read.
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This image is from the Thailand Stock Exchange after the close last night. As you can see it closed much higher in an effort to recover from the crash on Tuesday.
The market behavior with this crash is like most crashes that have occurred before, even if the duration seems a little shorter. Crashes are panics that often snap back in short order, maybe not one day short order but crashes are not the end of the world.
This is constructive because there is a reasonable chance that you will endure a crash in our market at some point in your life (not a prediction just a reality of markets). History shows selling into the panic of a crash is a bad move. I write something similar like this every so often because it is worth thinking about now while you are probably feeling pretty good about the market and can think about it without any emotion.
Short post, the time spent waiting for the sheriff has me a couple of hours behind in the stuff I usually read.
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Tuesday, December 19, 2006
International REIT ETF
The folks at streetTRACKS listed an international REIT ETF under ticker RWX (hat tip to Jen Ryan at TheStreet.com). You can link out to the PDF fact sheet here.
Australia is the largest holding at 19.65%, then UK at 18.92%, Japan at 17.28% and then a bunch (20) more including Chile with much smaller weights. The subsector make up is tough to get a handle on because 56% is other. The PDF says the yield is 2.6% but a phone call to StateStreet said 3.1%; maybe the difference is the 0.60% expense (I am aware those numbers don't add up).
I know people have been very hungry for this and more are on the way but I have trouble getting very excited. There has been chatter about US REITs being over priced based on relatively low yields, on a historical basis. I am not sure where 2.6% or 3.1% compares for the international segment but it does not seem that compelling.
I have had the same position for clients, just one holding for most folks, for ages. My REIT (individual name not an ETF) has done well but I have no plans to add more or switch. There are fundamental issues with the real estate markets in Australia, UK and Japan that might outweigh the positives; this is something you should study if you are considering this new fund.
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Australia is the largest holding at 19.65%, then UK at 18.92%, Japan at 17.28% and then a bunch (20) more including Chile with much smaller weights. The subsector make up is tough to get a handle on because 56% is other. The PDF says the yield is 2.6% but a phone call to StateStreet said 3.1%; maybe the difference is the 0.60% expense (I am aware those numbers don't add up).
I know people have been very hungry for this and more are on the way but I have trouble getting very excited. There has been chatter about US REITs being over priced based on relatively low yields, on a historical basis. I am not sure where 2.6% or 3.1% compares for the international segment but it does not seem that compelling.
I have had the same position for clients, just one holding for most folks, for ages. My REIT (individual name not an ETF) has done well but I have no plans to add more or switch. There are fundamental issues with the real estate markets in Australia, UK and Japan that might outweigh the positives; this is something you should study if you are considering this new fund.
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One Night in Bangkok
That is a song from my younger days that I now wonder why I ever listened to. It is also appropriate for the almost grizzly dislocation that could have ensued had the honchos in Thailand not pulled an Emily Litella on their idea for capital restriction, all in an effort to prevent the baht from getting too strong.
The Thai Fund (TTF) is actually up 5%.
If this was actually going to happen I imagine emerging markets, as an asset class, would have been pounded today. Investors with too much exposure to emerging markets got a break. Do you have too much? Are you feeling overly lucky? That is not where I would want to be. I tend to believe 15-20% is too much in emerging. Finding out the hard way that you have too much is not fun.
A reader asked for my take on the fundamental weighting versus cap weighting debate and linked to an article on Morningstar on the topic. Well, no shock that Morningstar is dubious but not completely dismissive, great.
I have faith in the concept of fundamental indexing. I have one WisdomTree ETF close to across the board and I am using a couple of others in situations where individual stocks are not ideal, some smaller accounts also own DVY. I also use one of the Rydex equal weight sector ETFs for some accounts and some of the theme ETFs too, like the water ETF.
I don't think that using just one method is the right thing to do. I am a fan of WisdomTree but would never use their funds exclusively in any type of account. I have written all along that I believe in seeking out the best product for each type of holding. For Ireland and Norway that means a common stock, for a given sector that might mean an ETF, for India (for now) a CEF and so on.
The ETF I think is the best for water today may not be the best product a year from now. I mentioned using one equal weight ETF for a small number of accounts. That is obviously new and, to me, preferable to the cap weighted products out there.
I think a blend of different products (for folks that only use products) can, if done correctly, give similar price appreciation, slightly better yield and a little less volatility than just buying SPY. I am not visualizing heroic returns with that comment but more the chance for a slightly smoother ride. I do not think that putting everything into just one concept, like all the equal weight funds, can do this. If similar price moves, slightly better yield and a little less volatility is possible is will come from blending.
The gang over at Wallstrip is looking at Suez today and they found an article of mine from Motley Fool from two years ago, funny.
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The Thai Fund (TTF) is actually up 5%.
If this was actually going to happen I imagine emerging markets, as an asset class, would have been pounded today. Investors with too much exposure to emerging markets got a break. Do you have too much? Are you feeling overly lucky? That is not where I would want to be. I tend to believe 15-20% is too much in emerging. Finding out the hard way that you have too much is not fun.
A reader asked for my take on the fundamental weighting versus cap weighting debate and linked to an article on Morningstar on the topic. Well, no shock that Morningstar is dubious but not completely dismissive, great.
I have faith in the concept of fundamental indexing. I have one WisdomTree ETF close to across the board and I am using a couple of others in situations where individual stocks are not ideal, some smaller accounts also own DVY. I also use one of the Rydex equal weight sector ETFs for some accounts and some of the theme ETFs too, like the water ETF.
I don't think that using just one method is the right thing to do. I am a fan of WisdomTree but would never use their funds exclusively in any type of account. I have written all along that I believe in seeking out the best product for each type of holding. For Ireland and Norway that means a common stock, for a given sector that might mean an ETF, for India (for now) a CEF and so on.
The ETF I think is the best for water today may not be the best product a year from now. I mentioned using one equal weight ETF for a small number of accounts. That is obviously new and, to me, preferable to the cap weighted products out there.
I think a blend of different products (for folks that only use products) can, if done correctly, give similar price appreciation, slightly better yield and a little less volatility than just buying SPY. I am not visualizing heroic returns with that comment but more the chance for a slightly smoother ride. I do not think that putting everything into just one concept, like all the equal weight funds, can do this. If similar price moves, slightly better yield and a little less volatility is possible is will come from blending.
The gang over at Wallstrip is looking at Suez today and they found an article of mine from Motley Fool from two years ago, funny.
Read more!
Mindset
Yesterday Greg Newton from Naked Shorts had a post that I felt was very Zen-like that I wanted link to and expand upon. In the post Greg discloses having some of his money with John Hussman, notes that Hussman is struggling this year but professes his faith in what Hussman is doing.
This is important. A given approach will not be the best approach for every phase of the market cycle. This year has not been a good one for Hussman's approach. Greg's comments take a longer term view than simply what is working right now.
Ooh this method had a bad year, I should bail. That will probably not get it done for the long term. A lag does not mean something is permanently broken. History shows Hussman knows what he is doing. If you are buying an active manager one way or another (fund or separate account) you are buying a belief that they can repeat past success. At some point a manger may lose it and if so you will need to make a change but a really bad year is not much of an indicator.
The same applies to a theme you may be invested in for your portfolio that you manage yourself. As an example I believe in Iceland as a long term theme. I may end up being right or wrong but I believe in it. To my way of thinking the correction that happened earlier in the year was not a reason to bail. I was not going to be right or wrong after just a few months.
Long time reader RW left a comment yesterday that is also germane to this. He described this market as a momentum market and said that value based investing is not going to do very well in a momentum market. You may or may not agree with the adjectives but the comment is very insightful. Over your investing lifetime there will be periods where you lag and periods where you lead the market. If you are reasonably close to the market over longer periods of time and you save properly you give yourself a great chance of having enough when you need it and that is the important thing, not that you beat or lagged the market by x% 15 years ago.
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This is important. A given approach will not be the best approach for every phase of the market cycle. This year has not been a good one for Hussman's approach. Greg's comments take a longer term view than simply what is working right now.
Ooh this method had a bad year, I should bail. That will probably not get it done for the long term. A lag does not mean something is permanently broken. History shows Hussman knows what he is doing. If you are buying an active manager one way or another (fund or separate account) you are buying a belief that they can repeat past success. At some point a manger may lose it and if so you will need to make a change but a really bad year is not much of an indicator.
The same applies to a theme you may be invested in for your portfolio that you manage yourself. As an example I believe in Iceland as a long term theme. I may end up being right or wrong but I believe in it. To my way of thinking the correction that happened earlier in the year was not a reason to bail. I was not going to be right or wrong after just a few months.
Long time reader RW left a comment yesterday that is also germane to this. He described this market as a momentum market and said that value based investing is not going to do very well in a momentum market. You may or may not agree with the adjectives but the comment is very insightful. Over your investing lifetime there will be periods where you lag and periods where you lead the market. If you are reasonably close to the market over longer periods of time and you save properly you give yourself a great chance of having enough when you need it and that is the important thing, not that you beat or lagged the market by x% 15 years ago.
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Monday, December 18, 2006
Sent To Me
Dude, where the hell are your pants? I have been stuck in mud before and taking off my pants never even occurred to me.
You really need to take a flashlight after dark.
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Foreign Has Lagged Domestic?
Someone named Darrin Richards from a firm called Wealth Advisors just said on CNBC that most foreign markets have lagged the domestic market this year. Hmm, most? Well not quite.
Off the top Japan and Korea have lagged but let's use Yahoo's International Indices page to double check.
Buenos Aires up 30%
Brazil up 30%
Mexico up 40%
Canada up 16% or 17% (eyeballing a chart)
Well so much for the Americas, maybe Europe?
Austria 22%
Belgium 25%
Denmark 17%
France 18%
Germany 22%
Netherlands 16%
Norway 28%
Italy 20%
Spain 21%
Sweden 22%
Switzerland 18%
UK not sure of the exact number it shows outperforming the S&P 500 slightly
How about Asia?
Australia 20%
China 100%
Hong Kong 22%
India 42%
Indonesia 50%
Malaysia 20%
Japan 10%
New Zealand 20%
Singapore 25%
Korea 5%
Taiwan 20%
The numbers are all 12 months, not year to date. The percentages may be off because I eyeballed the Yahoo charts but only Japan and Korea lagged the S&P 500 in local terms.
The point is not to pick on this guy but to reiterate that things we read and hear are sometimes incorrect. While this is a relatively unimportant example it does apply to things that matter too.
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Off the top Japan and Korea have lagged but let's use Yahoo's International Indices page to double check.
Buenos Aires up 30%
Brazil up 30%
Mexico up 40%
Canada up 16% or 17% (eyeballing a chart)
Well so much for the Americas, maybe Europe?
Austria 22%
Belgium 25%
Denmark 17%
France 18%
Germany 22%
Netherlands 16%
Norway 28%
Italy 20%
Spain 21%
Sweden 22%
Switzerland 18%
UK not sure of the exact number it shows outperforming the S&P 500 slightly
How about Asia?
Australia 20%
China 100%
Hong Kong 22%
India 42%
Indonesia 50%
Malaysia 20%
Japan 10%
New Zealand 20%
Singapore 25%
Korea 5%
Taiwan 20%
The numbers are all 12 months, not year to date. The percentages may be off because I eyeballed the Yahoo charts but only Japan and Korea lagged the S&P 500 in local terms.
The point is not to pick on this guy but to reiterate that things we read and hear are sometimes incorrect. While this is a relatively unimportant example it does apply to things that matter too.
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Shots Fired
This morning I participated in my first (hopefully my last) shots fired medical call. The shots were fired at a pit bull that bit a sheriff's officer in the leg. Zowie.
Statoil (STO), which is a longtime client and personal holding, is buying Norsk Hydro (NHY), save for the aluminum business. The deal is intended to strengthen Norway's position on the world oil scene. The deal makes the company the world's largest offshore operator. I am inclined to hold onto the stock but the addition of NHY stands to make STO more volatile. Since it does not close until 3rd quarter (making regulatory assumptions) this notion of increased volatility may change.
John Hussman's post this week is an especially good read. He gives a mea culpa of sorts and some historical context about what the market will have to overcome, on a valuation basis, to move higher. To be clear, the market is not cheap but history shows us that expensive can get much more expensive.
A last point; there are so many people expecting a multiple expansion for US stocks in 2007 that I have to wonder whether or not it can actually happen. My market prediction for 2006 was way off and so I am not arguing from a point of authority but should we fade the multiple expansion trade? The argument for expansion does not seem rock solid to me and we are close to 950 days without a correction or bear market. I am not trying to make a prediction so much as not losing sight of how markets usually work.
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Statoil (STO), which is a longtime client and personal holding, is buying Norsk Hydro (NHY), save for the aluminum business. The deal is intended to strengthen Norway's position on the world oil scene. The deal makes the company the world's largest offshore operator. I am inclined to hold onto the stock but the addition of NHY stands to make STO more volatile. Since it does not close until 3rd quarter (making regulatory assumptions) this notion of increased volatility may change.
John Hussman's post this week is an especially good read. He gives a mea culpa of sorts and some historical context about what the market will have to overcome, on a valuation basis, to move higher. To be clear, the market is not cheap but history shows us that expensive can get much more expensive.
A last point; there are so many people expecting a multiple expansion for US stocks in 2007 that I have to wonder whether or not it can actually happen. My market prediction for 2006 was way off and so I am not arguing from a point of authority but should we fade the multiple expansion trade? The argument for expansion does not seem rock solid to me and we are close to 950 days without a correction or bear market. I am not trying to make a prediction so much as not losing sight of how markets usually work.
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Planning Nuggets
These came from Barry's linkfest.
The WSJ had a post that I think I also saw on Marketwatch called Retirement Lies We Tell Ourselves (free access). There is one lie noted that comes up one way or another that I don't quite agree with. There is an adage that you should plan on needing 75%-80% of your income in retirement. The article says this is a myth and you will need more.
I think there is an argument to be made that you need far less. The way this can be possible is if you live below your means, something I preach to anyone who will listen. I concede I am a freakish outlier in this regard but I do believe that a normal person with a $150,000 income can live a $100,000 lifestyle and be quite happy. In what I think is realistic example, if the mortgage goes away at retirement might the $100,000 lifestyle only then need $80,000 in today's dollars?
Either way what needs to be replaced is what is spent not what is earned. If you spend every nickel you earn you will have a tougher time covering your needs in retirement or more likely you would need to make some very difficult choices.
Another benefit to this as I see it is by living below your means you will save more and you will be better able to endure some of the variables the WSJ article touches on like healthcare expenses and planning to work in retirement but not being able to which are both big issues.
This slide show from Fortune called 10 Rules For Building Wealth has some important ideas that you have probably heard before but are important nonetheless.
Number three was keeping your stock market investing simple. The word simple is subjective. I think of the portfolios I manage as being simple but someone who just started investing a couple of years ago may not. I know I have seen portfolios from new clients that looked very complicated to me. While I do not necessarily agree that the ideal portfolio for everyone is a few index funds it is the right idea for a lot of people. My take on this is that you should think your portfolio is simple, if you are doing it yourself.
The other good one was don't try to beat the market. This can be especially true for people that are saving properly and/or living below their means. If you can save 20% per year and your plan only needs to you to save 10% a year your portfolio does not need to work as hard. You still need growth, don't get me wrong but the lengths to which you go to get growth do not need to be as great.
Lastly Tom in Indy asks for my take on some commentary that if the Fed cuts in Q1 the ten year will go to 4% but if they wait until Q2 or Q3 the ten year will go to 5%.
Save for an external shock I don't think there is anyway the Fed can cut in Q1. This would pull the rug out from their own credibility. A normal pause between hiking and easing is nine months which would be March at the earliest and I just don't think they will cut that soon but maybe the meeting after March but my hunch is June.
The 4% number for the ten year strikes me as an assumed reaction of fear that the Fed is afraid of having gone too far. The 5% number still seems like it is lower than normal for a ten year bond. I would expect that when the curve normalizes that something closer to 6% in the ten year is possible only because it is well within normal for that kind of maturity.
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The WSJ had a post that I think I also saw on Marketwatch called Retirement Lies We Tell Ourselves (free access). There is one lie noted that comes up one way or another that I don't quite agree with. There is an adage that you should plan on needing 75%-80% of your income in retirement. The article says this is a myth and you will need more.
I think there is an argument to be made that you need far less. The way this can be possible is if you live below your means, something I preach to anyone who will listen. I concede I am a freakish outlier in this regard but I do believe that a normal person with a $150,000 income can live a $100,000 lifestyle and be quite happy. In what I think is realistic example, if the mortgage goes away at retirement might the $100,000 lifestyle only then need $80,000 in today's dollars?
Either way what needs to be replaced is what is spent not what is earned. If you spend every nickel you earn you will have a tougher time covering your needs in retirement or more likely you would need to make some very difficult choices.
Another benefit to this as I see it is by living below your means you will save more and you will be better able to endure some of the variables the WSJ article touches on like healthcare expenses and planning to work in retirement but not being able to which are both big issues.
This slide show from Fortune called 10 Rules For Building Wealth has some important ideas that you have probably heard before but are important nonetheless.
Number three was keeping your stock market investing simple. The word simple is subjective. I think of the portfolios I manage as being simple but someone who just started investing a couple of years ago may not. I know I have seen portfolios from new clients that looked very complicated to me. While I do not necessarily agree that the ideal portfolio for everyone is a few index funds it is the right idea for a lot of people. My take on this is that you should think your portfolio is simple, if you are doing it yourself.
The other good one was don't try to beat the market. This can be especially true for people that are saving properly and/or living below their means. If you can save 20% per year and your plan only needs to you to save 10% a year your portfolio does not need to work as hard. You still need growth, don't get me wrong but the lengths to which you go to get growth do not need to be as great.
Lastly Tom in Indy asks for my take on some commentary that if the Fed cuts in Q1 the ten year will go to 4% but if they wait until Q2 or Q3 the ten year will go to 5%.
Save for an external shock I don't think there is anyway the Fed can cut in Q1. This would pull the rug out from their own credibility. A normal pause between hiking and easing is nine months which would be March at the earliest and I just don't think they will cut that soon but maybe the meeting after March but my hunch is June.
The 4% number for the ten year strikes me as an assumed reaction of fear that the Fed is afraid of having gone too far. The 5% number still seems like it is lower than normal for a ten year bond. I would expect that when the curve normalizes that something closer to 6% in the ten year is possible only because it is well within normal for that kind of maturity.
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Saturday, December 16, 2006
Newfield NFLD Options Follow Up
This chart is the volatility for I don't know what the market is pricing in (I specifically did not try to figure it out) but something is going on. A big move in either direction should not be a shock.
This brings up another point. Sometimes options have too much premium to even sell. The Jan 7.50 puts were bid at $1.30 at the close. That kind of premium for a strike 50% away from the market says to me that market thinks $7.50 (or maybe more correctly $6.20, $7.50 minus the premium) by January 19 is within the realm.
As a matter of philosophy I don't believe the options market gives away money for nothing.
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Follow Ups and Some Humor
A reader called me on what I meant by emerging market PE ratios not being cheap at 14. Generally PE ratios are often lower than developed markets and dividend yields are often higher. Emerging markets, as an asset class, carry more risk of coups (Thailand), political shenanigans (Hungary), very volatile currency moves (Iceland) and other things. The three I noted all happened this year. Places like Brazil and Turkey have histories of wild inflation. This all needs to be compensated some how and lower PEs and higher yields is a way to do it.
A benchmark of 18 times earnings with a 2% yield (the US market) to start looking at emerging markets is not a good idea. PE ratios are not great predictors of future direction where markets are concerned (you can find some spirited debate about whether PEs offer any predictive value for individual stocks). High PE ratios can get much higher. I have not made any serious changes to my emerging market exposure of late (I have mentioned the tweak or two I did make) but cheap, at 14 times for iShares Emerging Market (EEM), is not an accurate description these days.
Another reader left a comment about this being a weird year for mutual funds noting that the Hussman Fund has struggled. The reader asks about whether this is a new paradigm. I don't think it is a new paradigm. Concede me this point for a moment, the market has gone up this year despite the fact that it should not have gone up. Still conceding me the point, markets have gone up when they shouldn't have and down when they shouldn't have many times throughout history. Conceding me the point another moment, 2006 is just one more example of something that has happened before and will happen again. Now if you no longer wish to concede me the point then you clearly don't believe 2006 was a new paradigm.
There were a couple of comments about the call selling scheme where the book authors are looking for 3-4% per month. One reader chronicled two successful naked sales of some puts. There are plenty of put sales that go well and plenty of call sales that go well, no doubt.
There is no convincing me that stock selection based on call premium is a good idea (I am not saying the commenting put seller is in this camp). I don't know exactly what the guys who wrote the book referenced in the video are doing but I have seen this movie before. People build a portfolio of nothing but high octane stocks, make 4% a month for some time period and then the market has some sort of normal correction or bear market and the gains are more than given back. The number of people that are better off without a diversified portfolio is quite small.
Another reader talked about Wade Cook seminars on selling options in the late 1990's. Selling calls worked very well in the late 1990's until it didn't, as mentioned above.
If you want to sell options go ahead. My advice would be to build a portfolio with what you think are the best stocks for a diversified portfolio. When the market gives what you think is a good options trade, take the trade. You might need to learn more than you now know about options so you can recognize when a trade is a good one. To be clear I am not saying you should trade options I am saying if you decide you want to, this is what I would do. It is not the right strategy for everyone. Most people are probably better off without them.
Lastly I stumbled across something called the World Combat League on the VS channel (the old OLN). It had a very ESPN 8, the Ocho feel about it except these guys are all bad asses.
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A benchmark of 18 times earnings with a 2% yield (the US market) to start looking at emerging markets is not a good idea. PE ratios are not great predictors of future direction where markets are concerned (you can find some spirited debate about whether PEs offer any predictive value for individual stocks). High PE ratios can get much higher. I have not made any serious changes to my emerging market exposure of late (I have mentioned the tweak or two I did make) but cheap, at 14 times for iShares Emerging Market (EEM), is not an accurate description these days.
Another reader left a comment about this being a weird year for mutual funds noting that the Hussman Fund has struggled. The reader asks about whether this is a new paradigm. I don't think it is a new paradigm. Concede me this point for a moment, the market has gone up this year despite the fact that it should not have gone up. Still conceding me the point, markets have gone up when they shouldn't have and down when they shouldn't have many times throughout history. Conceding me the point another moment, 2006 is just one more example of something that has happened before and will happen again. Now if you no longer wish to concede me the point then you clearly don't believe 2006 was a new paradigm.
There were a couple of comments about the call selling scheme where the book authors are looking for 3-4% per month. One reader chronicled two successful naked sales of some puts. There are plenty of put sales that go well and plenty of call sales that go well, no doubt.
There is no convincing me that stock selection based on call premium is a good idea (I am not saying the commenting put seller is in this camp). I don't know exactly what the guys who wrote the book referenced in the video are doing but I have seen this movie before. People build a portfolio of nothing but high octane stocks, make 4% a month for some time period and then the market has some sort of normal correction or bear market and the gains are more than given back. The number of people that are better off without a diversified portfolio is quite small.
Another reader talked about Wade Cook seminars on selling options in the late 1990's. Selling calls worked very well in the late 1990's until it didn't, as mentioned above.
If you want to sell options go ahead. My advice would be to build a portfolio with what you think are the best stocks for a diversified portfolio. When the market gives what you think is a good options trade, take the trade. You might need to learn more than you now know about options so you can recognize when a trade is a good one. To be clear I am not saying you should trade options I am saying if you decide you want to, this is what I would do. It is not the right strategy for everyone. Most people are probably better off without them.
Lastly I stumbled across something called the World Combat League on the VS channel (the old OLN). It had a very ESPN 8, the Ocho feel about it except these guys are all bad asses.
Read more!
Friday, December 15, 2006
Foreign Items
A long time reader left a comment about National Bank of Greece (NBG) as a proxy for some of the frontier markets of central and eastern Europe. I have looked at the stock every now and then over the last few years. I remember it having a good yield but not quite as good as Yahoo shows at 8%. Yahoo has the dividend at $0.76, the trailing earnings at $0.58 and next year's earnings at $0.75. If anyone knows more about this please post a comment.
This chart is of the SOFIX index in Bulgaria. I tried to get a chart from Romania but I could not find one on BigCharts and the chart at the Bucharest Exchange site only gave a one day chart.
Below the SOFIX chart is a one year chart for NBG. Eyeballing the chart is the only means at my disposal to begin to try to assess this. Clearly the charts do not look similar.
This does not mean that NBG can't benefit from lending to these countries which was the foundation for past posts I wrote about Austria. I don't know how much business NBG gets from Bulgaria, Romania and the others but if it does business in these places it will capture some benefit but I don't have enough information to say it is capturing the effect.
Hypothetically if a Greek bank derived half of its revenue from Serbia and Romania but the correlation of the share price to those indices was only 0.5, are you capturing the effect? This is debatable.
Another reader notes that emerging markets look cheap compared to the US and developed markets. Careful with that one. Emerging market PE ratios are usually much cheaper than in the US. According to Altavista Research the PE for EEM is 14. That is not cheap for emerging markets. I would say ten times earnings is closer to normal.
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This chart is of the SOFIX index in Bulgaria. I tried to get a chart from Romania but I could not find one on BigCharts and the chart at the Bucharest Exchange site only gave a one day chart.
Below the SOFIX chart is a one year chart for NBG. Eyeballing the chart is the only means at my disposal to begin to try to assess this. Clearly the charts do not look similar.
This does not mean that NBG can't benefit from lending to these countries which was the foundation for past posts I wrote about Austria. I don't know how much business NBG gets from Bulgaria, Romania and the others but if it does business in these places it will capture some benefit but I don't have enough information to say it is capturing the effect.Hypothetically if a Greek bank derived half of its revenue from Serbia and Romania but the correlation of the share price to those indices was only 0.5, are you capturing the effect? This is debatable.
Another reader notes that emerging markets look cheap compared to the US and developed markets. Careful with that one. Emerging market PE ratios are usually much cheaper than in the US. According to Altavista Research the PE for EEM is 14. That is not cheap for emerging markets. I would say ten times earnings is closer to normal.
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Never Ending Bull Market Random Thoughts
A reader left a comment saying they were "selling all their EEM" due to my "getting rid of emerging market exposure." This was in reference o my Smile and Wave post yesterday. This reader has added 1 + 1 and gotten 11. I sold one position that is up 50% in a couple of months that four clients owned. This is a slight tweak, I did not get rid of anything. If EEM is this person's only emerging market exposure he is making a big bet by selling down to zero, one that I never make. It is frustrating when people only see what they want to see but I guess that is human nature.
I found this little nugget that opines frontier markets stand to attract a lot more investment. The countries mentioned were Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia and Slovenia.
Neil Hennesey made an interesting comment on the tube yesterday when he compared holding Citigroup (C) to holding a treasury because the stock has such a high yield. I am not a huge fan of this line of thought. If the stock does not do much for some period of time, fine but the risk reward for a common stock is different than for a treasury. I have written a few times about certain holdings being bond-like but I would not think of a large cap financial stock as one of them.
One reader left an astute comment about CEFs that had traded at discounts for long periods of time now trading at premiums. I disclosed buying a Blackrock call-selling CEF a few weeks back. It was at a 1% premium when I bought it and now is at a 4.6% premium. Relatively big premiums can always get bigger but this is not a positive.
Another reader asked for my opinion about the transportation sector. He said that the group has not done very well and wonders if now might be time for them to come from behind, maybe he means as a sort of contrarian call of an unloved group.
I like the thought process and I might use the same line of thought and say that healthcare looks like a candidate to provide some leadership. I made a similar prediction about telecom last December. As with telecom then, there is nothing now (cyclically anyway) to stand in the way of healthcare doing well. For the trannies to do well they need to overcome a slowing economy. The various indicators do give a mixed signal about the economy, I still lean to this cycle being just like most other cycles and the yield curve telling us it will end soon. If that is right then it would be difficult for trannies to lead now. If that is wrong and the economy achieves a soft landing and starts to expand again without a normal stock market correction then I do think the reader is on to something.
I am not trying to be a wise-ass with the skewing of that last paragraph but the idea of betting against a normal economic and stock market cycle is something that is difficult for me to do.
One last item is the new one-week ad to the right from Mountain Hardware. I have a bunch of their clothing for hiking. They are having a contest to give away some merchandise, feel free to enter. I was paid for the ad placement not clicks so I don't think it is click fraud to suggest you try to win some free stuff.
Read more!
I found this little nugget that opines frontier markets stand to attract a lot more investment. The countries mentioned were Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia and Slovenia.
Neil Hennesey made an interesting comment on the tube yesterday when he compared holding Citigroup (C) to holding a treasury because the stock has such a high yield. I am not a huge fan of this line of thought. If the stock does not do much for some period of time, fine but the risk reward for a common stock is different than for a treasury. I have written a few times about certain holdings being bond-like but I would not think of a large cap financial stock as one of them.
One reader left an astute comment about CEFs that had traded at discounts for long periods of time now trading at premiums. I disclosed buying a Blackrock call-selling CEF a few weeks back. It was at a 1% premium when I bought it and now is at a 4.6% premium. Relatively big premiums can always get bigger but this is not a positive.
Another reader asked for my opinion about the transportation sector. He said that the group has not done very well and wonders if now might be time for them to come from behind, maybe he means as a sort of contrarian call of an unloved group.
I like the thought process and I might use the same line of thought and say that healthcare looks like a candidate to provide some leadership. I made a similar prediction about telecom last December. As with telecom then, there is nothing now (cyclically anyway) to stand in the way of healthcare doing well. For the trannies to do well they need to overcome a slowing economy. The various indicators do give a mixed signal about the economy, I still lean to this cycle being just like most other cycles and the yield curve telling us it will end soon. If that is right then it would be difficult for trannies to lead now. If that is wrong and the economy achieves a soft landing and starts to expand again without a normal stock market correction then I do think the reader is on to something.
I am not trying to be a wise-ass with the skewing of that last paragraph but the idea of betting against a normal economic and stock market cycle is something that is difficult for me to do.
One last item is the new one-week ad to the right from Mountain Hardware. I have a bunch of their clothing for hiking. They are having a contest to give away some merchandise, feel free to enter. I was paid for the ad placement not clicks so I don't think it is click fraud to suggest you try to win some free stuff.
Read more!
Thursday, December 14, 2006
Smile and Wave Boys, Smile and Wave
Those are my thoughts as this market continues to lift with seemingly no resistance. I am no less skeptical. I would be happy to remain skeptical right through a new high.There are countless times in market history when the market rallies when you don't expect it to, which is exactly why I write repeatedly about not making big bets.
I sold an emerging market name that only a few clients own at the open but other than that I am letting things run for now. I wish I had more exposure and I am glad I don't have less.
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WisdomTree
Interview: Luciano Siracusano, Director of Research for ETF Firm WisdomTree Asset Management - SeekingAlpha
This is a good read (answers still coming) about all things WisdomTree from the inner circle.
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This is a good read (answers still coming) about all things WisdomTree from the inner circle.
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Unintentional Comedy
"Hey Mr. Taco Bell CEO, would you eat at Taco Bell now? Is it safe?"
What's he supposed to say?
Uh, no. No one should eat at our restaurant ever again. We can't know if it will ever be safe again, ever.
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What's he supposed to say?
Uh, no. No one should eat at our restaurant ever again. We can't know if it will ever be safe again, ever.
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Thursday Tidbits
Tom Lydon from ETFTrends had a link to a research boutique called Altavista Independent Research that does what appears to be a type of bottoms stock-like analysis of the ETFs it covers. They have research on 13 what it calls broad market ETFs which includes style and cap weighted funds and DVY. They also have research on the nine Select Sector SPDRs (not sub sector) and nine international EFTs including EEM and several single country funds.
There were two (that I could find anyway) sample reports from a ways back that weren't wrong per se but I don' think were spectacularly correct either but my initial reaction may not be right.
My initial reaction is that they cover too small a universe but they do say that they cover most of the dollars held in ETFs which I'm sure is true. I will try to call them to see if anyone there will tell me what they are about.
IndexUniverse is reporting that ETF Securities, the firm with all the commodity ETFs that trade in London but not accessible in the US, is cross listing its funds on Euronext. The article raises the obvious point that maybe this will lead access through the NYSE but no, or maybe more correctly, not yet. PowerShares and Deutsche Bank have some things in the works that could improve the space that I will try to learn more about.
Lastly some fun with Pakistan. This chart compares the benchmark KSE 100 Index with Pakistan Telecom which I presume is the big telephone company.
As you can see it was a good proxy for a while but not so lately. I don't think Pakistan Telecom is investible; there are no accounts at Schwab that own it which is a decent barometer for accessibility. As an amusing anecdote there is one account that owns Bank of Cyprus (BCYPF), you know, as in Cyprus.
I should add, before anyone thinks their privacy is being violated with this info it is not. There is a screen that will show all account numbers that hold a stock (BTW it is very unlikely that anyone answering the phone will know this screen). All I am asking is do any clients own it and the only answer I am getting is yes or no, or in the case of Bank of Cyprus "yes just one." This is a good way to tell whether a stock can be traded through Schwab without having to call the global desk during the trading day which I find gives me a 50/50 shot of being spoken to rudely.
Pakistan seems like it is several years from being investible and even then I don't know that I would want to but the point is that for now we don't need to know. I think of this sort of thing as the early learning stages. If somehow Pakistan becomes the best place to invest in 2012 I won't have to start learning it then from scratch, I would have several years of study behind me.
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There were two (that I could find anyway) sample reports from a ways back that weren't wrong per se but I don' think were spectacularly correct either but my initial reaction may not be right.
My initial reaction is that they cover too small a universe but they do say that they cover most of the dollars held in ETFs which I'm sure is true. I will try to call them to see if anyone there will tell me what they are about.
IndexUniverse is reporting that ETF Securities, the firm with all the commodity ETFs that trade in London but not accessible in the US, is cross listing its funds on Euronext. The article raises the obvious point that maybe this will lead access through the NYSE but no, or maybe more correctly, not yet. PowerShares and Deutsche Bank have some things in the works that could improve the space that I will try to learn more about.
Lastly some fun with Pakistan. This chart compares the benchmark KSE 100 Index with Pakistan Telecom which I presume is the big telephone company.As you can see it was a good proxy for a while but not so lately. I don't think Pakistan Telecom is investible; there are no accounts at Schwab that own it which is a decent barometer for accessibility. As an amusing anecdote there is one account that owns Bank of Cyprus (BCYPF), you know, as in Cyprus.
I should add, before anyone thinks their privacy is being violated with this info it is not. There is a screen that will show all account numbers that hold a stock (BTW it is very unlikely that anyone answering the phone will know this screen). All I am asking is do any clients own it and the only answer I am getting is yes or no, or in the case of Bank of Cyprus "yes just one." This is a good way to tell whether a stock can be traded through Schwab without having to call the global desk during the trading day which I find gives me a 50/50 shot of being spoken to rudely.
Pakistan seems like it is several years from being investible and even then I don't know that I would want to but the point is that for now we don't need to know. I think of this sort of thing as the early learning stages. If somehow Pakistan becomes the best place to invest in 2012 I won't have to start learning it then from scratch, I would have several years of study behind me.
Read more!
Wednesday, December 13, 2006
Scotland An Oil Power?
The Scotsman - Can oil and gas fuel an independent Scotland's economy?
There is a debate about whether Scotland should become an independent country.
Here is another link with a different aspect of the story.
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There is a debate about whether Scotland should become an independent country.
Here is another link with a different aspect of the story.
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Financial Planning Research
A good friend of mine has an investment management practice in San Diego called Trivant Custom Portfolios. John and Dan, the braintrust, had the following paper published that is a very good read. Check it out and let them know what you think.
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Google Finance Enhancements
Yesterday I had a post about Romania and said I could not find a chart of the Romanian leu currency. Well, with a hat tip to Trader Mike, the new Google Finance has it.As I said yesterday, Romania has some clear and obvious obstacles to economic health yet YTD the dollar is down a lot against the leu.
Chances are you don't care about the leu but the important thing is that it is becoming easier to access tools that used to only be available through a Bloomberg or some other expensive means. This evolution, although obvious, is very empowering for the do-it-yourselfer.
And some bad video to go with this...
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Clough Funds
A while back I wrote about the closed end funds managed by former Merrill Lynch Strategist Chuck Clough. Two of the funds have been around for a while now and appear to be really struggling.The global allocation fund which trades as GLV has had a rough go NAV-wise. According to Yahoo Finance the NAV on December 12, 2005 was $24.00 and yesterday it was $23.71. During the year it paid dividends totaling $1.44. If I am figuring correctly the total return for the last 12 months was 5.9%.
The equity fund, GLQ, NAV appears to have had a total return of 10% over the trailing 12 months. In this post I am only talking about the NAV because that is the result of the fund's management. The market price takes in fear and greed and is beyond the manager's control.
I was not able to find the country allocations for GLV but ETFconnect had that info for GLQ. GLQ is 6o% US, 40% foreign. Using the top ten of GLV as a proxy the fund might also be 60% US, 40% foreign. So some comparison that includes both SPY and EFA is reasonable. The chart above, which may be skewed because of the dividend, shows a bad lag.
Both funds appear to be heavy in Japan which has not had a great year. It's tough to tell if the manager has just been unlucky or if the problem is more serious. The most recent shareholder letter includes a mea culpa and I seem to recall looking at a past letter that also had a mea culpa but I may be wrong about that.
The lesson here, for me, is that there is no great urgency to buy into a new product that is actively managed. Buying an actively managed product is really a display of faith in the manager and the strategy. There is nothing wrong with adding a little bit of track record to the faith. Where a CEF is concerned it also makes sense to wait for the premium to erode.
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Tuesday, December 12, 2006
SLX Stress Test
SLX is the Market Vectors Steel ETF. It listed in October. As you may know Nucor is getting crushed and some the other related stocks have rolled over in the last couple of days.The chart shows that SLX has generally been a smoother ride but has lagged the move in some of its larger components.
This is an obvious observation but it is worthwhile to see that a product does what it is intended to do.
RIO is a client holding.
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Romania
In the spirit of my post last night about Pakistan, here is a PDF about Romania which is trying to get into the EU and then the EMU further down the road. The report notes some genuine obstacles to overcome with various imbalances and inflation but what it interesting is that the currency, the Leu (which is difficult to chart), is up 23% against the US dollar in the last two and half years. Oops.
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Who Knew?
Yesterday I made a humorous (attempt anyway) reference to Nuvelo (NUVO) which was down about 80% on bad news about test results.
This prompted several comments making fun of the Street.com guy who touted and sell side analysts (who apparently were generally bullish on the name) who cover it and had to change their ratings after the news.
I had never heard of the stock and don't know who at theStreet touted it. If it is a one drug, small cap biotech; well when you swim around the Farallons you are going to have problems.
This brings up an interesting point. The stock was/is a lottery ticket. Owning one or two lottery tickets totalling no more than a couple of percent of your portfolio is not crazy reckless, it may be too much for you or someone you know but a 2% weight in this NUVO would have made for a bad day not financial ruin.
Do you own any lottery tickets? What would be your state of mind if your lottery ticket went down by 80%? Depending on your answer should you sell your lottery ticket now before it has death blow news?
The question and answer here has nothing to do with fundamentals or the story or even portfolio construction. I guarantee there were some people that owned NUVO in a reasonable weighting that freaked out because of the decline. Figure out if this would be you or not--if you even own a lottery ticket--and do what you need to do to avoid a freak out, or if you prefer a phreak out.
On a more serious note was this comment from someone who says he had 25% of his retirement in the stock and is dealing with a six figure hit. Based on the wording of the comment, which is all I know about this, I can't conceive of how anyone could think 25% in any one thing makes any sense. The other day the topic here was whether 20% was too much for REITs, as an asset class.
If memory serves, biotech is about 3% of the market this person had 25% in one biotech stock. Sorry for that person but this is the exact opposite of what have I have been writing about here since I started and this example is a case in point of what I was talking about. If you have 25% in one stock you are taking an absurdly colossal risk.
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This prompted several comments making fun of the Street.com guy who touted and sell side analysts (who apparently were generally bullish on the name) who cover it and had to change their ratings after the news.
I had never heard of the stock and don't know who at theStreet touted it. If it is a one drug, small cap biotech; well when you swim around the Farallons you are going to have problems.
This brings up an interesting point. The stock was/is a lottery ticket. Owning one or two lottery tickets totalling no more than a couple of percent of your portfolio is not crazy reckless, it may be too much for you or someone you know but a 2% weight in this NUVO would have made for a bad day not financial ruin.
Do you own any lottery tickets? What would be your state of mind if your lottery ticket went down by 80%? Depending on your answer should you sell your lottery ticket now before it has death blow news?
The question and answer here has nothing to do with fundamentals or the story or even portfolio construction. I guarantee there were some people that owned NUVO in a reasonable weighting that freaked out because of the decline. Figure out if this would be you or not--if you even own a lottery ticket--and do what you need to do to avoid a freak out, or if you prefer a phreak out.
On a more serious note was this comment from someone who says he had 25% of his retirement in the stock and is dealing with a six figure hit. Based on the wording of the comment, which is all I know about this, I can't conceive of how anyone could think 25% in any one thing makes any sense. The other day the topic here was whether 20% was too much for REITs, as an asset class.
If memory serves, biotech is about 3% of the market this person had 25% in one biotech stock. Sorry for that person but this is the exact opposite of what have I have been writing about here since I started and this example is a case in point of what I was talking about. If you have 25% in one stock you are taking an absurdly colossal risk.
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Monday, December 11, 2006
Pakistan Banks
Getting video to play is not easy just yet but I was able to get through most of it and learned a little bit.Pakistan could be years away from being a viable investment destination but there is no question it will become a more important country in the global economy. I think it worth the time spent now reading or watching the occasional bit that you can so that when there are multiple choices you will have built up some real knowledge so that you can make an informed decision about whether this is for you or not.
This is true of a lot of countries.
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HSA Choices
Starting in January my HSA will offer the following mutual funds;
Columbia Large Cap Value NVLEX.lw
Columbia Mid Cap Value CMUAX.lw
Columbia Small Cap Value II COVAX.lw
Columbia Marsico Growth NMGIX.lw
Columbia Mid Cap Growth CBSAX.lw
Columbia Sm Cap Growth II NSCGX.lw
Columbia Multi-Advisor Intl MAIOX.lw
Columbia Large Cap Enhanced NMIAX
Columbia Income LIIAX.lw
Columbia High Income NAHAX.lw
Columbia Life Goal Balanced NBIAX.lw
Columbia Life Goal Growth NLGIX.lw
Columbia Life Goal Grth & Inc NLGAX.lw
Columbia Life Goal Income NLFAX.lw
I wonder if I would be better off putting the whole thing in NUVO LEAPS?
Read more!
Columbia Large Cap Value NVLEX.lw
Columbia Mid Cap Value CMUAX.lw
Columbia Small Cap Value II COVAX.lw
Columbia Marsico Growth NMGIX.lw
Columbia Mid Cap Growth CBSAX.lw
Columbia Sm Cap Growth II NSCGX.lw
Columbia Multi-Advisor Intl MAIOX.lw
Columbia Large Cap Enhanced NMIAX
Columbia Income LIIAX.lw
Columbia High Income NAHAX.lw
Columbia Life Goal Balanced NBIAX.lw
Columbia Life Goal Growth NLGIX.lw
Columbia Life Goal Grth & Inc NLGAX.lw
Columbia Life Goal Income NLFAX.lw
I wonder if I would be better off putting the whole thing in NUVO LEAPS?
Read more!
Stray Random Tidbits
Both the Riksbank and Norges Bank are meeting this week are are expected to hike rates to 3% and 3.5% respectively. These are two of many countries that are still raising rates.
The folks at SmartShares (they list ETF-like products on the New Zealand Stock Exchange) are going to list a product that will track the ASX 20 (not 200), the 20 largest stocks in Australia. Practically speaking there is no easy way for US investors to access this product but the bigger macro is the notion of investing in one country (Australia in this case) via another country (New Zealand in this case). I touched on this one before, referring to Kaupthing Bank in Iceland offering equity mutual funds that invest in other regions of the world. This is a concept to remember that I think it will become possible in the next few years.
This link I found on Barry's site makes Dr. Roubini look like a Kudlowite. I don't agree with the magnitude of any of his conclusions and I think he makes too many leaps without enough to support the ideas but it creates a new outlier of doom and gloom.
One reader asked about structured products as a way to access commodities. Generally I am not a fan of these. They are often wildly complex with many contingencies.
I just completed the TickerSense poll for 2007. I'm not sure when the poll will post, the cutoff to respond was December 14. I am curious to see results.
One addition to the ETFs I'd like to see list from the weekend video is buywrite index ETFs. I have touched on these on the site before but did not mention them along with timber and the like. I think a true indexed product in ETF form would be better than the closed end structure.
Lastly, thank you for all the great comments. I don't always have time to reply but I try and they are always appreciated.
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The folks at SmartShares (they list ETF-like products on the New Zealand Stock Exchange) are going to list a product that will track the ASX 20 (not 200), the 20 largest stocks in Australia. Practically speaking there is no easy way for US investors to access this product but the bigger macro is the notion of investing in one country (Australia in this case) via another country (New Zealand in this case). I touched on this one before, referring to Kaupthing Bank in Iceland offering equity mutual funds that invest in other regions of the world. This is a concept to remember that I think it will become possible in the next few years.
This link I found on Barry's site makes Dr. Roubini look like a Kudlowite. I don't agree with the magnitude of any of his conclusions and I think he makes too many leaps without enough to support the ideas but it creates a new outlier of doom and gloom.
One reader asked about structured products as a way to access commodities. Generally I am not a fan of these. They are often wildly complex with many contingencies.
I just completed the TickerSense poll for 2007. I'm not sure when the poll will post, the cutoff to respond was December 14. I am curious to see results.
One addition to the ETFs I'd like to see list from the weekend video is buywrite index ETFs. I have touched on these on the site before but did not mention them along with timber and the like. I think a true indexed product in ETF form would be better than the closed end structure.
Lastly, thank you for all the great comments. I don't always have time to reply but I try and they are always appreciated.
Read more!
Bull or Bear or Neither
The Shark Report notes that Jim Cramer is up 6% YTD. I do not know if that is accurate or what date that number is from. I know Jim has generally been optimistic as of late but am not sure if he has been bullish all year or not.
Over the weekend a comment was left calling me a tool for being bearish all year. Clearly my prediction of 1180-1219 for the S&P 500 will be very wrong, certainly at this point I hope it will be wrong.
If you have been reading this site for a while you know I am about even with the market YTD, my biggest mistakes are too much cash and taking on a position in the double short ETF, through June I was ahead of the S&P 500 by about five percentage points.
Taking Jim's year and my year as a learning opportunity I think it is useful to bring up a couple of concepts I have written about repeatedly. One is that predictions don't matter anywhere near as much as actions taken and the other is to not make too big a bet on one particular outcome.
If I had positioned client accounts in line with what I thought was going to happen my numbers would be much worse than market equaling. We all know that some folks take risky measures to keep up with or beat the market whether they need to or not. You, managing your own portfolio, should never feel compelled to chase returns. If you maintain a diversified portfolio you will have years in which you beat the market and years in which you lag the market and you can't know ahead of time what a given year will bring.
The pressure to keep up often triggers dumb trades. Avoiding performance chasing dumb trades is high on my priority list.
Read more!
Over the weekend a comment was left calling me a tool for being bearish all year. Clearly my prediction of 1180-1219 for the S&P 500 will be very wrong, certainly at this point I hope it will be wrong.
If you have been reading this site for a while you know I am about even with the market YTD, my biggest mistakes are too much cash and taking on a position in the double short ETF, through June I was ahead of the S&P 500 by about five percentage points.
Taking Jim's year and my year as a learning opportunity I think it is useful to bring up a couple of concepts I have written about repeatedly. One is that predictions don't matter anywhere near as much as actions taken and the other is to not make too big a bet on one particular outcome.
If I had positioned client accounts in line with what I thought was going to happen my numbers would be much worse than market equaling. We all know that some folks take risky measures to keep up with or beat the market whether they need to or not. You, managing your own portfolio, should never feel compelled to chase returns. If you maintain a diversified portfolio you will have years in which you beat the market and years in which you lag the market and you can't know ahead of time what a given year will bring.
The pressure to keep up often triggers dumb trades. Avoiding performance chasing dumb trades is high on my priority list.
Read more!
Sunday, December 10, 2006
The One Decision Portfolio
There is a post on Seeking Alpha about the portfolio put forth by Marvin Appel in his book. I touched on this once before.
The portfolio calls for;
- S&P 500 20% (SPY)
- REITs 20% (ICF)
- Small Cap Value 10% (IWN)
- Investment Grade Bonds 30% (AGG)
- Cash 30%
Clearly, as with any type of all weather concept, there are gaps but there are positives too. As some of the comments on the SA post note there is no foreign exposure and no natural resource exposure. I have not read the book but the post gives me the impression than these segments of the market are covered elsewhere in the book than from this one excerpt.
A positive is the recognition that small cap value is an important asset class and clearly anyone could implement this and rebalance it. I wonder if the large reliance on REITs because of how they have performed in recent times might be a mistake going forward. I think 20% in something this narrow is a lot. It is much more exposure than I have ever thought about using and as some readers have pointed out recently, REITs are looking pricey the most historical measures.
The yield of this mix is 1.95% (per Morningstar) which is not that high given only 30% is in stocks (here I am excluding the REITs). I am not sure if that number takes in the yield from cash or not. If not, assuming 5% on the $30,000 the overall yield would then go to 3.45%. Again, only 30% is in regular equities so the yield strikes me a low. Morningstar also says the mix has 55% in financials which if correct (and it may not be) is very high, and so is underweight everything else.
Generally I think simple is better but I am wary of too simple. None of us can know what will become of things like social security or Medicare (and I concede nothing bad may happen here), will we have some sort of economic collapse in the US or will the next big boom allow the country to grow out of all the various deficits and short comings (certainly this is not impossible)?
These things are beyond our control so it makes sense to focus on what is in your control which is your savings rate and taking an active role in the management of your portfolio (here this can mean doing it yourself or hiring someone).
From what I can tell this mix is not forward looking, it appears to be based on how these assets classes have done in the past. I would not be willing to bet the future of my financial security solely on a strategy that has worked well in the past. The belief in a more proactive approach might be more of a philosophical thing but markets all evolve. I think history is important to understand and incorporate into what is hopefully a forward looking analysis.
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Saturday, December 09, 2006
The Big Picture For The Week Of December 10, 2006
Toward the end I use the word yield two or three times when I should be saying the word return.
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Friday, December 08, 2006
Caution
Bloomberg.com: Opinion
The above link is a column by Chet Currier suggesting caution about emerging market investments after a big move up in the last few months.
I have touched on this off and on in the last couple of years in terms of moderation. Lately some emerging/frontier markets have been white hot.
I have disclosed owning the Vietnam Opportunity (VOF.L) personally and for a couple of clients and out of nowhere it has made a very big move. I mentioned buying a Russian stock personally and for a few clients in October that is up 12% or 13% since then.
At this point it makes sense for me to think about selling down some of this non-core exposure.
Here sentiment is great and it looks like all systems go, kind of like last April. While I have no reason to try to predict a 20% correction this might be a good time to revisit emerging market weightings.
Read more!
The above link is a column by Chet Currier suggesting caution about emerging market investments after a big move up in the last few months.
I have touched on this off and on in the last couple of years in terms of moderation. Lately some emerging/frontier markets have been white hot.
I have disclosed owning the Vietnam Opportunity (VOF.L) personally and for a couple of clients and out of nowhere it has made a very big move. I mentioned buying a Russian stock personally and for a few clients in October that is up 12% or 13% since then.
At this point it makes sense for me to think about selling down some of this non-core exposure.
Here sentiment is great and it looks like all systems go, kind of like last April. While I have no reason to try to predict a 20% correction this might be a good time to revisit emerging market weightings.
Read more!
Progress on the Koko Caper
He now has given attribution to my post and Bill Rempel's I looked for attribution to Charles Kirk but did not see--but I could have missed it. I also noticed that a couple of other posts had quote marks but I don't think there was attribution but maybe that will follow if attribution is due?
Props to Mark Haines calling Abby Joseph Cohen Jo Co. That was funny and maybe I'll "steal" it in the future. Humor attempt in light of the Koko Caper.
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Props to Mark Haines calling Abby Joseph Cohen Jo Co. That was funny and maybe I'll "steal" it in the future. Humor attempt in light of the Koko Caper.
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Friday Morning Nuggets
The other day I mentioned having a sit down with the designer of the index that will underlie the Patent ETF--proper name is the Claymore Ocean Tomo Patent 300 Index Fund (OTP). By the way I think there is a Polish bank by that name.
I plan to do a write up for TSCM when it lists but I had a couple of thoughts now. I think the thing here is the secondary effect. Its history is that it has a 92% correlation to the S&P 500 but averages 300 basis points of outperformance studied over ten years. The focus is on patents, so it occurred to me that chances are not too many financial companies have patents; turns out that is right. I was told there is only one financial stock in the fund. If you look at where SPX gets its yield it makes sense that OTP will yield less than SPY. So better price appreciation (per my conversation) but less yield (per my thought process).
It seems to me that OTP will be a proxy for larger cap growth. The person I met with might disagree on the growth part and obviously I could be wrong but the lack of financial exposure makes me think it will tilt to growth. Pairing OTP with one of the dividend ETFs could be a viable alternative to holding SPY.
The concept here is that the dividend ETFs are heavy in financials, obviously yield more than SPY and probably tilt to value because of the financial weighting. I have no idea if this combo would work as a better performing alternative to SPY or not but that isn't the point.
The point is that some new ETFs will have a useful secondary effect. You can't know about this if you shun every new product that comes along, that is if you even use products as part of your portfolio.
After sleeping on the Koko affair it seems to be so out there and so bizarre that I still don't know exactly what to think. Yes it is ripping off but the act is so blatant that there is an element of unintentional comedy to it; Koko.
The jobs number; seriously what are we supposed to do this? I have said this before and obviously I am not the first to say this the revisions are more important than the report. Wasn't September dreadful when it first printed? Do I have that right? Now doesn't it look pretty good on a relative basis?
Read more!
I plan to do a write up for TSCM when it lists but I had a couple of thoughts now. I think the thing here is the secondary effect. Its history is that it has a 92% correlation to the S&P 500 but averages 300 basis points of outperformance studied over ten years. The focus is on patents, so it occurred to me that chances are not too many financial companies have patents; turns out that is right. I was told there is only one financial stock in the fund. If you look at where SPX gets its yield it makes sense that OTP will yield less than SPY. So better price appreciation (per my conversation) but less yield (per my thought process).
It seems to me that OTP will be a proxy for larger cap growth. The person I met with might disagree on the growth part and obviously I could be wrong but the lack of financial exposure makes me think it will tilt to growth. Pairing OTP with one of the dividend ETFs could be a viable alternative to holding SPY.
The concept here is that the dividend ETFs are heavy in financials, obviously yield more than SPY and probably tilt to value because of the financial weighting. I have no idea if this combo would work as a better performing alternative to SPY or not but that isn't the point.
The point is that some new ETFs will have a useful secondary effect. You can't know about this if you shun every new product that comes along, that is if you even use products as part of your portfolio.
After sleeping on the Koko affair it seems to be so out there and so bizarre that I still don't know exactly what to think. Yes it is ripping off but the act is so blatant that there is an element of unintentional comedy to it; Koko.
The jobs number; seriously what are we supposed to do this? I have said this before and obviously I am not the first to say this the revisions are more important than the report. Wasn't September dreadful when it first printed? Do I have that right? Now doesn't it look pretty good on a relative basis?
Read more!
Thursday, December 07, 2006
What Is This?
I stumbled across a blog called Global Invesmtent Trends at appears to have copied my post about CNBC.com, save for the last sentence and also appears to have copied a post by Bill Rempel.
My CNBC.com
His CNBC.com
Bill's post about the boomer bust
His Bill Rempel copy
You tell me, better yet maybe you could tell him.
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My CNBC.com
His CNBC.com
Bill's post about the boomer bust
His Bill Rempel copy
You tell me, better yet maybe you could tell him.
Read more!
"I Would Prefer It If You Di_n't"
So said Mrs. Sokol's daughter to George Costanza about calling for another date.
I am having this feeling about Barclays Bank (BCS) which is up on rumors of a take over from either the US or Spain--according to what I read from TheFlyOnTheWall.com.
I mentioned in the comments yesterday that I have owned the name for most clients for a couple of years--longer actually. I have no idea about any takeover but if there is anything to the talks I hope it does not pan out.
I think bank stocks are a great way, but not the only way, to capture the UK. Rightly or wrongly I picked the one that I thought was the best way that I think can add value to the portfolio for years to come, that is unless it is gone.
A pop on a takeover helps in the short run but I am more concerned with the longer run.
Read more!
I am having this feeling about Barclays Bank (BCS) which is up on rumors of a take over from either the US or Spain--according to what I read from TheFlyOnTheWall.com.
I mentioned in the comments yesterday that I have owned the name for most clients for a couple of years--longer actually. I have no idea about any takeover but if there is anything to the talks I hope it does not pan out.
I think bank stocks are a great way, but not the only way, to capture the UK. Rightly or wrongly I picked the one that I thought was the best way that I think can add value to the portfolio for years to come, that is unless it is gone.
A pop on a takeover helps in the short run but I am more concerned with the longer run.
Read more!
Bond Indices Follow Up
In the context of my recent comments about sovereign debt I found this link that BGI is creating an ETF to mimic a UK Government Bond index covering all maturities for trading in London. So as a company they must not be adverse to new government bond ETFs--to go along with TLT, SHY and the like.
The following are the countries that MSCI/Barra has created sovereign debt indices for according to the literature I picked up at the Super Bowl of Indexing.
Owning foreign individual bonds is just about impossible for most retail investors. Obviously ETFs are not individual bonds but they would allow do-it-yourselfers to isolate some very narrow themes that for now can't be captured.
Bond exposure to a healthy economy like Finland or Ireland, without having to study credit risk of a company, is at least intriguing. Learning about the current state of an economy like maybe Portugal or Belgium is probably easier than learning about a stock.
In a typical 70% stock 30% fixed income portfolio it would not be reckless to allocate 10% of the fixed income portion, or 3% of the whole pie, into sovereign debt of a country you are comfortable with. The bonds aren't going to zero, realistically, even if you pick poorly.
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The following are the countries that MSCI/Barra has created sovereign debt indices for according to the literature I picked up at the Super Bowl of Indexing.
- Austria
- Belgium
- Finland
- France
- Germany
- Greece
- Ireland
- Italy
- Netherlands
- Portugal
- Denmark
- Norway
- Sweden
- Switzerland
- UK Gilts
- Australia
- Canada
- JGB
- New Zealand
- Czech Republic
- Hungary
- Poland
- South Africa
Owning foreign individual bonds is just about impossible for most retail investors. Obviously ETFs are not individual bonds but they would allow do-it-yourselfers to isolate some very narrow themes that for now can't be captured.
Bond exposure to a healthy economy like Finland or Ireland, without having to study credit risk of a company, is at least intriguing. Learning about the current state of an economy like maybe Portugal or Belgium is probably easier than learning about a stock.
In a typical 70% stock 30% fixed income portfolio it would not be reckless to allocate 10% of the fixed income portion, or 3% of the whole pie, into sovereign debt of a country you are comfortable with. The bonds aren't going to zero, realistically, even if you pick poorly.
Read more!
Wednesday, December 06, 2006
I Doubt That
Kevin Shacknofsky from the team that manages the Alpine Dynamic Dividend Fund (ADVDX) which I own for literally a couple of very small accounts just talked about a name I own personally and for clients and have mentioned a couple times recently; Macquarie Infrastructure Trust (MIC).
He sees great growth for the stock but did not get the chance to say why. I am as favorably disposed to Macquarie's concept and this particular trust as anyone but great growth? I really doubt it. It has spent the vast majority of its public life between $28 and $33 and while I would welcome great growth I don't think that is a realistic expectation.
I would expect (maybe hope is a better word) that the shares will drift higher over time and continue to pay its dividend, maybe even increase it a little over time. Keep in mind it owns toll roads and airport garages.
The idea here is to know, reasonably, what your holdings are capable of doing most of the time. It is unlikely that MIC will be a real mover to the upside; I own it to dampen volatility and of course add yield. If you are looking for other attributes you should probably look for another name.
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He sees great growth for the stock but did not get the chance to say why. I am as favorably disposed to Macquarie's concept and this particular trust as anyone but great growth? I really doubt it. It has spent the vast majority of its public life between $28 and $33 and while I would welcome great growth I don't think that is a realistic expectation.
I would expect (maybe hope is a better word) that the shares will drift higher over time and continue to pay its dividend, maybe even increase it a little over time. Keep in mind it owns toll roads and airport garages.
The idea here is to know, reasonably, what your holdings are capable of doing most of the time. It is unlikely that MIC will be a real mover to the upside; I own it to dampen volatility and of course add yield. If you are looking for other attributes you should probably look for another name.
Read more!
The Dumbest Guy In The Room Part 3 of 3
I stopped by the FTSE booth and found one interesting item coming; the FTSE Macquarie Global Infrastructure Index which will be an ETF, possibly as soon as next quarter. I have written about and disclosed owning the Macquarie Trust (MIC) which is not an indexed product. Macquarie has a bunch of infrastructure indices including Australia, Europe and Japan. The global kind has E.ON, Suez (client holding) and ENI as its top three. The country mix is fairly diverse but the US is the largest by far at 40%. I am a big believer in this niche that Macquarie has created and while I like MIC for now, at about a 3% weight, I would swap into something from them I felt was superior.
One of the more interesting visits was with the people from MSCI/Barra. There were a lot comments left by readers for fixed income ETFs. Well, MSCI/Barra has all the indices that the entire industry will ever need (this may be hyperbole but they have a lot of them). One thing that may have come through in my post the other day about bonds is I don't feel the need to get too exotic. I would be thrilled to have access to sovereign debt from other countries. They have these indices from all the big countries along with places like Hungary South Africa. Maintaining indices of government bonds is not a huge obstacle like foreign corporates could be. I tend to think, where foreign bonds are concerned, it is more about capturing general effect than every last basis point.
My last big visit was with Rydex to whom I owe a big thanks for getting me into this shindig in the first place. The Yen ETF is in registration and will probably round out the product line. I'd like to see the Sing dollar, a currency of interest to Jim Rogers, and a way to access other crosses like eur/jpy or nzd/jpy. Rydex also has an ETF based on a credit default swap index (CDX) somewhere in the process and when I asked about a VIX ETF and confessed I was not exactly sure how it would work he laid it all out in about two seconds which makes me think, as mentioned above, some thought has been devoted to the idea. The potential applications for VIX and CDX ETFs would be very sophisticated and something I need to learn more about.
One very unique thing about my time with Rydex was the total package view they take on all their products. Every product they introduce has to be able to tie in with their use of Modern Portfolio Theory, something they call Essential Portfolio Theory. Maybe every ETF company would say the same thing when asked but the Rydex guy was not asked.
The strangest part of my experience with the conference was that there was no one manning the iShares booth the entire time. Ditto the State Street ETF booth.
One last note about the list of ETFs I took from readers is that many of them are in the works and a few of them already exist. I got a couple "hey we already have that" reactions to which I replied that if people don't know about it, it does not exist.
Read more!
One of the more interesting visits was with the people from MSCI/Barra. There were a lot comments left by readers for fixed income ETFs. Well, MSCI/Barra has all the indices that the entire industry will ever need (this may be hyperbole but they have a lot of them). One thing that may have come through in my post the other day about bonds is I don't feel the need to get too exotic. I would be thrilled to have access to sovereign debt from other countries. They have these indices from all the big countries along with places like Hungary South Africa. Maintaining indices of government bonds is not a huge obstacle like foreign corporates could be. I tend to think, where foreign bonds are concerned, it is more about capturing general effect than every last basis point.
My last big visit was with Rydex to whom I owe a big thanks for getting me into this shindig in the first place. The Yen ETF is in registration and will probably round out the product line. I'd like to see the Sing dollar, a currency of interest to Jim Rogers, and a way to access other crosses like eur/jpy or nzd/jpy. Rydex also has an ETF based on a credit default swap index (CDX) somewhere in the process and when I asked about a VIX ETF and confessed I was not exactly sure how it would work he laid it all out in about two seconds which makes me think, as mentioned above, some thought has been devoted to the idea. The potential applications for VIX and CDX ETFs would be very sophisticated and something I need to learn more about.
One very unique thing about my time with Rydex was the total package view they take on all their products. Every product they introduce has to be able to tie in with their use of Modern Portfolio Theory, something they call Essential Portfolio Theory. Maybe every ETF company would say the same thing when asked but the Rydex guy was not asked.
The strangest part of my experience with the conference was that there was no one manning the iShares booth the entire time. Ditto the State Street ETF booth.
One last note about the list of ETFs I took from readers is that many of them are in the works and a few of them already exist. I got a couple "hey we already have that" reactions to which I replied that if people don't know about it, it does not exist.
Read more!
The Dumbest Guy In The Room Part 2 of 3
My first meeting was with WisdomTree. They want to be, and I believe will be, a big player in the industry. They are interested in exploring fixed income in a meaningful way and he was intrigued by the idea of an equity ETF that covered the Nordics including Iceland which we talked about for several minutes. He also agrees that the N-11 is a logical place for a future product but that a frontier ETF is probably a ways off.
I posed the idea of a dividend ETF that weighted the sectors in line with the S&P 500. For example it would be 20% financials not 35%-40% like most broad dividend ETFs. I think this may have come up before in-house (and actually I'm not sure I didn't find this idea elsewhere) because of how quickly he answered; the idea runs the risk of having the some of the biases that go along with cap-weighting that they are trying to avoid.
One last item on my time with WisdomTree; in my last couple of articles on WisdomTree funds for TSCM I thought I had stumbled onto something. Some of their funds almost have two classes of the same fund one of which will have about 1000 holdings and then a high yielding version of the same fund that will have 300-400 taken from the larger 1000. My theory was that if dividends are the thing then wouldn't the high yielding version, the one with 300-400 names, always outperform? The response was there may be something there. Not a yes not a no but interesting.
I spent quite a bit of time with the folks from Claymore. If anyone is going to take on some of the more esoteric ideas from the list I posted yesterday, my bet would be on these guys. First thing is the Oil Up (UCR) and Oil Down (DCR) Macroshares are interesting. I'll write more later but they capture the movement of oil without having to manage any oil contracts I can also say the concept is of interest to other fund companies. I also had a one on one sit down with the guy who designed the Claymore Patent ETF which will trade under ticker OTP. I had heard of this idea before and it seemed so out there that I would not have even thought of mentioning it. But getting the explanation from the guy allowed me to understand what they are doing. I do not have an opinion yet but studying it is not a waste at all. The fact that I needed ten minutes face time with the designer of the index to understand it may be a tell that the fund may not be popular.
I had a very quick howdy with someone from the CBOE. I asked if anyone was interested in making an ETF out of their buy-write indices; that have five of them and they were involved with helping the ASX in Australia create their buywrite index. There is interest, that's about all that he could say. Unfortunately the CBOE booth was not getting a lot of traffic, so I am not sure there will be enough interest to make investible products around these or not but I hope so.
Come back in a couple of hours for part three.
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I posed the idea of a dividend ETF that weighted the sectors in line with the S&P 500. For example it would be 20% financials not 35%-40% like most broad dividend ETFs. I think this may have come up before in-house (and actually I'm not sure I didn't find this idea elsewhere) because of how quickly he answered; the idea runs the risk of having the some of the biases that go along with cap-weighting that they are trying to avoid.
One last item on my time with WisdomTree; in my last couple of articles on WisdomTree funds for TSCM I thought I had stumbled onto something. Some of their funds almost have two classes of the same fund one of which will have about 1000 holdings and then a high yielding version of the same fund that will have 300-400 taken from the larger 1000. My theory was that if dividends are the thing then wouldn't the high yielding version, the one with 300-400 names, always outperform? The response was there may be something there. Not a yes not a no but interesting.
I spent quite a bit of time with the folks from Claymore. If anyone is going to take on some of the more esoteric ideas from the list I posted yesterday, my bet would be on these guys. First thing is the Oil Up (UCR) and Oil Down (DCR) Macroshares are interesting. I'll write more later but they capture the movement of oil without having to manage any oil contracts I can also say the concept is of interest to other fund companies. I also had a one on one sit down with the guy who designed the Claymore Patent ETF which will trade under ticker OTP. I had heard of this idea before and it seemed so out there that I would not have even thought of mentioning it. But getting the explanation from the guy allowed me to understand what they are doing. I do not have an opinion yet but studying it is not a waste at all. The fact that I needed ten minutes face time with the designer of the index to understand it may be a tell that the fund may not be popular.
I had a very quick howdy with someone from the CBOE. I asked if anyone was interested in making an ETF out of their buy-write indices; that have five of them and they were involved with helping the ASX in Australia create their buywrite index. There is interest, that's about all that he could say. Unfortunately the CBOE booth was not getting a lot of traffic, so I am not sure there will be enough interest to make investible products around these or not but I hope so.
Come back in a couple of hours for part three.
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The Dumbest Guy In The Room Part 1 of 3
Someone has a joke about if you can't find the idiot in the room it's probably you. Well I had some feeling along this line on my trip to the Super Bowl of Investing down in Phoenix yesterday. I have a lot of notes, met a lot of people and got three uninterrupted minutes of one on time with Jeremy Siegel. Perhaps I wasted the opportunity in that I did not really ask any meaty questions I just chatted with him. We talked about the 15% tax rate sunsetting (or not) and I told him that if my college professors had been half as motivated as he is I might have actually been successful.
The featured event was a celebrity death match between Professor Siegel and Burton Malkiel. Siegel believes that indexing can and has evolved such that the biases of cap weighting (tilt to larger growth) can be mitigated with fundamental indexing. Professor Malkiel believes that while fundamental indexing has been the place to be in the last few years he has concerns that it cannot continue to outperform, he noted that fundamental indexing has a bias to smaller value. Malkiel also noted that the 10.5% returns on the Ibbotson charts may become a memory; he cited some PE research that points to growth rotating back into favor.
I asked one of only two questions taken from the crowd; I asked Professor Malkiel that assuming he is correct about lower returns, there is an implication that there would be more down years to come than in the past, might not that be an endorsement for an approach that gives up some upside return in exchange for less downside which the backtest of WisdomTree demonstrates? He said no citing the PE research in the main presentation which was that the spread between higher PE stocks and lower PE stocks is narrow by its own history. When it narrows like it has now, growth outperforms. I understand his point, I certainly could not out-debate him on it but I am not sure I agree with his conclusion.
I'll recap the meetings I had but there is an element of confidentiality and limits to what can be on the record. Generalizations are kosher but specifics are not so I will take the under on this and leave names out. I handed out the list I posted on Tuesday morning to at least a half dozen people.
Come back in a couple of hours for part two.
Read more!
The featured event was a celebrity death match between Professor Siegel and Burton Malkiel. Siegel believes that indexing can and has evolved such that the biases of cap weighting (tilt to larger growth) can be mitigated with fundamental indexing. Professor Malkiel believes that while fundamental indexing has been the place to be in the last few years he has concerns that it cannot continue to outperform, he noted that fundamental indexing has a bias to smaller value. Malkiel also noted that the 10.5% returns on the Ibbotson charts may become a memory; he cited some PE research that points to growth rotating back into favor.
I asked one of only two questions taken from the crowd; I asked Professor Malkiel that assuming he is correct about lower returns, there is an implication that there would be more down years to come than in the past, might not that be an endorsement for an approach that gives up some upside return in exchange for less downside which the backtest of WisdomTree demonstrates? He said no citing the PE research in the main presentation which was that the spread between higher PE stocks and lower PE stocks is narrow by its own history. When it narrows like it has now, growth outperforms. I understand his point, I certainly could not out-debate him on it but I am not sure I agree with his conclusion.
I'll recap the meetings I had but there is an element of confidentiality and limits to what can be on the record. Generalizations are kosher but specifics are not so I will take the under on this and leave names out. I handed out the list I posted on Tuesday morning to at least a half dozen people.
Come back in a couple of hours for part two.
Read more!
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