A blogger named Michael Johnston posed an interesting question in asking whether, after the closing of several prominent hedge funds, ETFs that try to replicate hedge fund strategies will replace hedge funds.The first one to come to mind is the IndexIQ Multi Tracker (QAI). QAI listed in March with a very heavy allocation to fixed income ETFs (QAI replicates several hedge fund strategies using ETFs) so as stocks have gone up a lot QAI has gone up very slightly.
In addition to QAI IndexIQ has filed for 15 other ETFs of ETFs that will more narrowly isolate specific hedge fund strategies.
In general terms the concept has merit. While I would want to give any sort of fund like this quite a few months to prove itself it is reasonable to think that most of these funds can deliver some sort of low vol effect that does not correlate to the US equity market. Some will disappoint though.
What is not a good bet is some sort of exchange traded, retail product going up 500% in year because it shorted the Latvian lat, the Estonian kroon and the Slovenian tolar as we will probably hear about some hedge fund somewhere doing six months from now.
Who knows how these things will be marketed but I would bet that many people will assume they can get huge returns and the only way I can see that happening would be if equities in general had huge returns one year.
There will be a lot of funds in this space but hopefully not unrealistic expectations.
Congrats to Randy Johnson for getting win number 300.
18 comments:
http://seekingalpha.com/article/141517-why-etfs-are-a-scam?source=feed
Roger, would you please comment on this article?
Roger & Bill B- Bill Luby (Vix & more) comments on Condor;s article and his own take on the 200 DMA simple and exponential. Well worth a read.
Bottom line is the 200 DMA is declining at a rapid rate, markets are up pre-market with the job report.
Roger- what is one to do if you use the 200 day as an entry target?
http://vixandmore.blogspot.com/2009/06/spx-and-200-day-moving-average.html
Anon, I've already done my homework on the 200 day SMA and my results don't necessarily agree with his. You can find my results here.. For my next trick, I'll compare the results between EMA and SMA. Note: I have tables of data, not charts. Charts are so easily twisted and cherry picked.
There's nothing really new in that Bill Luby article.
That's pretty interesting, billb. I'm gonna have to read that a few times, esp. now that I've picked up "The Ivy Portfolio" at the library. I'll see if Faber has stats to compare.
The annoying part is that it'd probably be difficult/impossible to do that with a portfolio, as many things you might use in a portfolio (for instance, per Faber, DBC, VNQ etc.) haven't been around that long.
Anon, I've already done my homework on the 200 day SMA and my results don't necessarily agree with his. You can find my results here.. For my next trick, I'll compare the results between EMA and SMA. Note: I have tables of data, not charts. Charts are so easily twisted and cherry picked.
@ Bill B,
If you've already got all the data entered in a spreadsheet, it might be worth testing the 50 DMA/200 DMA crossover ("golden" cross and "death" cross) versus the 200 DMA alone.
I've been of the opinion that it is superior to the 200 DMA for gauging "healthy" equity demand because there are far fewer whipsaws and false signals (based on just visual inspection of the charts), but it still gets you into and out of major uptrends and downtrends. I partially used this to exit the vast majority of my REIT position in the middle of 2007.
http://stockcharts.com/h-sc/ui?s=$SPX&p=W&st=1980-01-01&en=1989-12-31&id=p53611180180
http://stockcharts.com/h-sc/ui?s=$SPX&p=W&st=1990-01-01&en=1999-12-31&id=p71077091837
http://stockcharts.com/h-sc/ui?s=$SPX&p=W&st=2000-01-01&en=2009-06-03&id=p51922754898
Just eyeballing the charts, one can see the 200 DMA triggers quite a few false sell/get defensive signals during basically steady, sustained multi-year bull markets such as 82-87, 95-00, and 03-07.
In contrast, false “death cross” signals during sustained bull moves are relatively rare (1998 panic sell-off), and still get you out when a nasty bear is beginning (2000 and 2008).
I don't use a spreadsheet, I use RightEdge. I've done my homework on SMA crossovers too, they stink so far as I can tell. I can run them through RightEdge in a myriad of ways and post the results for you if you want. I might have some time this weekend.
[soapbox]
Let me say one thing ... I've been a purely technical guy for over a decade. I've tested hundreds of indicators and I can tell you this, there is no indicator that provides an edge in every time frame and in every market. I think that's pretty clear w/ the SMA that I tested against the Naz, Dow and SPX. Pretty varying results. Now go take and run that on Gold, emerging markets, individual stocks, bonds and I bet some will lose, some will win and maybe even act differently over different time frames. To me, this is random.
[/soapbox]
Stephen Drone- I came across some comments you have made at various blogs and would appreciate your feedback on Harry Browne's permanent portfolio strategy. Craig at www.crawlingwoad.com has some great insight into this strategy. In summary, it advocates the use of 4 equal weighted asset classes consisting of gold, st bonds, long term treasuries (20+) and stocks (total stock market). The results from 1972 have been quite impressive, annual return average of 10.0% and only 2 losing years. Minimal volatility and drawdowns are bearable. Any insight here is appreciated from you, Bill B, Roger, etc.
Yes, but the people who got out of the market late last year and are now getting back in make me jealous!
You know, while I realize unemployment is pretty high, I think it's interesting how different this market FEELS vs the early part of this decade. Back then, many of the layoffs and problems were in my field (I.T.) so the unemployment was MUCH more apparent (to me) than it is now.
Bill B, a technician, says no single indicator provides an edge all the time. So how do you know which indicator, or set of them, to use in a given situation? And how do you know they are providing you valid information?
Seems like there is an awful lot of room for mistakes.
I can understand using something basic such as 200 DMA but beyond that it seems a bit hazy to me. Clearly I'm not a technician. I just thought I'd ask. And yes, I've been called stupid before, and perhaps it's true.
BillM
do a blog search here for Harry Browne . We discussed it a lot at some point late last year.
as an aside, I keep part of my portfolio (set aside for investing, but to be used if necessary for large purchases, emergencies, etc.) in the "permanant portfolio": VTI, GLD, TLT, and BIL.
Bill M, great questions and I don't believe there is a correct answer. Think of technical analysis like stock picking. There are a million approaches, there are opinions, and plenty of misleading and incorrect data. Maybe mine is misleading too! My speculative account uses a combination of fundamentals and technical analysis. It's a question of style and execution.
So just like portfolio assembly it goes back to individual psychology. The piece I like about system building is that I can understand how a change to my algorithms change the metrics of the system itself.
My point is, I don't think anyone can take a single strategy/indicator/constellation alignment and say "if you do this, you'll beat the market". I think it's a combination of things including the underlying asset and vehicle chosen.
Let's take the Roger's SMA strategy. His goal is to preserve and grow client's capital. The SMA strategy all by itself will likely underperform (with exceptions), but his drawdown will be less. Something to think about, if you lost 25-50% of your retirement nest egg a year before retirement, would that change your life? Probably. If you outperform by a couple of points the year before retirement, would that be a life changer? Probably not. Looking at it like that, Roger's approach makes a lot of sense. From a raw return standpoint, not so much.
Anyway, I don't want to hijack the blog with T/A mumbo jumbo. I'd be happy to chat offline.
Roger,
I must commend you for your forecast back in march when the Yamada’s where calling a plunge, you where calling an upsurge (bear market rally) for a 30% upward move. Now we have crossed the 200dma, which has attracted fund managers. Now the Yamada’s looking through the rear window says hey we are 1938 scenario. Anyone can look at the rear window and say hey we are here or there. But the medals go out to the individuals like many readers in this blog that put money every day on the line. However, a big boo000000 goes out to the Yamada’s that not only gets it wrong and never admits it but also gets paid for it. I have some money not as much as the indices and have played safe which means under perform, but after this I have put up some rudimentary analytical tools that I will follow and not the charlatans that are not in the game but get rich on sentimental calls and only pointing to history (rear window). Perhaps after a 40% upswing it is time that we all look at what happen and see what has worked and what has not. Yes the 200dma has kept you out of trouble but does it get you in time to make you money, or does it pile you in with the rest of the fund managers. To me it does not make sense to get into sds and then buy at these levels. Stainhardt said that people at these levels are expecting a miracle but from 666 to today’s levels it has been a miracle already. My wife called a bank in Milan and the bank workers were complaining about the many calls about capital gains. That tells me that many people are getting out and taking profits, I am not that crazy to get in for another 5 to 10% move. Look at BCS you recommended at 4-5, well 3 days ago hit 20 and now is 16. I did not take your call (feel bad for that), but those that did if they are not selling that position must be mashugener (my ex boss for saying for crazy), and if they wanted to keep some well sell 70, 80 90% of the position, the rest is free. Sorry if I am a bit critical, but it is meant as affectionate critique hoping that perhaps can stimulate some thinking.
Best,
Jeff from Milan Italy
P.S. Gen.Mot. – WallMart (http://www.youtube.com/watch?v=KWu-efNN8PM)
I must commend you for your forecast back in march when the Yamada’s where calling a plunge, you where calling an upsurge (bear market rally) for a 30% upward move. Now we have crossed the 200dma, which has attracted fund managers. Now the Yamada’s looking through the rear window says hey we are 1938 scenario. Anyone can look at the rear window and say hey we are here or there. But the medals go out to the individuals like many readers in this blog that put money every day on the line. However, a big boo000000 goes out to the Yamada’s that not only gets it wrong and never admits it but also gets paid for it.
Whoa. I've got no connection to Yamada AT ALL, but I gotta correct some of this nonsense.
I first became aware of Yamada in 2002 when I was working as an investment analyst for a bank and we had access to Citigroup research.
Over the last 6 years, I've tracked and utilized several of her forecasts, and in the world of technical analysis, there is hardly anyone better. She nailed the gold and oil bull markets back in 01/02 when NOBODY was expecting them to go to $150 and $1000 in the next 5 years. And she nailed this bear market early and repeatedly said to get the hell out of financials.
The only call she has really missed badly was calling for more downside when we had already breached 700. Nobody gets em all right.
Your post just reminded me of the hecklers who go after Roger for this or that.
Mike C. Did you read Market Magic? Well in that book she said that oil would go down (p.162) because of supply, conservation, ect, ect. Did you know what the book was about (strong recommendation) that you should load up on … WATER. If you come to Italy I can sell you plenty, right out of the Alps. I have lots of respect for Roger that admits when he is a little off, and is not pompous like you know whom. Actually Roger does it better and for free. I have never heckled any one. I am telling as is. Mike please do not be an accuser, I have my share of that type. When I was in the US (and will never come back) I lost every thing (house, IRA, KEO, job, and family) because some people in the USA(really bad one) very easily accuse people. Must be very careful, and think, think, think, before you make an accusation. Look at some innocent people in death row, look at what rating agencies, politicians, executives have done to those poor people. In a socialized country like Italy if you accuse someone without any proof that person gets 5 years in jail, and a civil penalty money penalty.
Jeff from Milan, Italy
Goodness gracious. How about a rational analysis of buy/hold/rebalance. It really hasn't been that bad. No hand wringing over the best indicator or false signals. You guys will be here thirty years from now having the same arguements.
Is there an ETF that tracks the number of illegal Mexicans invading America? I would like to short it.
Thanks for your help.
RR- this is quite an interesting chart and analysis on the 200DMA. take a look...
http://www.nakedhedgefund.com/wp-content/uploads/2009/05/200day2.pdf
Naked Hedge takes another shot at 200DMA at http://www.nakedhedgefund.com/ -- full file at http://tinyurl.com/ra8o3k (ht Barry Ritholtz)
Anon 5:38, no ETF unfortunately but, assuming you know a short from a snort, a synthetic defrumination can be achieved by quasi-straddles across the peso, gold, corn and pepper futures cross-traded with Magic Valley water wings: The contest for control of congress between white, multi-billionaire plutocrats and impoverished, brown folks requires careful attention to position size so keep an eye peeled for growlers. Got it?
Post a Comment