A.I.M. Users Bulletin Board

[OldAIMGuy]

Hi Mike, Re: SPHB vs SPY................

The short view is that the higher beta ETF does offer a bit more amplitude in price movement. Frequency doesn't seem to be enhanced at all. It appears that a bullish market tends to support SPHB's upward movement while flat markets favor SPY to a greater extent. Downward market moves are exaggerated as one would expect.

All that said, the short history of SPHB since around 2011 when compared to the SPY shows it to be an underperformer overall.

http://stockcharts.com/freecharts/perf.php?sphb%2Cspy
Stretch the X-Axis to its full length and you'll see what I mean. I don't think the enhanced amplitude could ever make up for the deficit in total return.

PowerShares ETFs tend to have far higher annual costs than do other index related ETFs. So, some of the underperformance could be internal costs.

BETA in and of itself is interesting and can be used when choosing between two similar types of stocks or funds. However, it ignores total return completely. For "traders" it may guide them toward stocks/funds that should give a bit more juice to short term trading. I find that most ETFs are 'trend following' in their movements. So, enhancing BETA doesn't necessarily do as much good as expected.

Other than my retirement account which is based upon mostly "style" type ETFs essentially all of my other holdings are based on sector type ETFs. Originally when I started using ETFs I thought that sector rotation would offer a portfolio made up of the major sectors the opportunity for AIM to opportunistically work each individual sector. There would be improved total return over holding something like SPY by AIMing each sector. One would gain a bit of amplitude over SPY and each sector would be its own AIM engine.

Almost from the beginning of my ETF effort it seemed as though sector rotation died on the vine. Other than the current Energy "out of favor" history the rest of the sectors seem to be moving somewhat in harmony. So, sectors have offered less AIM differentiation than expected for most of the last 10 or more years. I don't foresee that this is forever, but right now it seems far more lockstep than I ever expected back in 2000.

With the style ETFs I found that there is some differentiation based upon market cycle. Bearish markets tend to favor the large caps and punish mid and small caps to a greater degree. (good for AIM buying in mid and small caps, good for portfolio preservation owning larger caps) The deeper the bear market the less differentiation as eventually the larger cap ETFs seem to follow along, downward. Recovering markets first favor the larger cap style ETFs. Then come the mid and small caps. Maturing bull markets continue to favor small and mid caps while the larger cap ETFs start to flatten out. Etc.

Maybe that's the beauty of the "Ultimate Buy and AIM" (UBA) portfolio idea. AIM works each ETF according to its activity throughout the overall market cycle. There, the income side also stabilizes overall value as it works the other side of the "Growth and Income" side of the street. Total return hasn't been bad for my UBA account but did slow down for a while due to excess cash on hand. Yield on cash is still very low, but the early 2016 swoon put enough cash back to work that the portfolio is again doing okay relative to the overall market.

I hope this helps.