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Hi Karw
Thanks for the info about share lending.I guess that is the incentive to run an ETF. Synthetic ETFs or any ETF that uses futures to replicate the holdings of an index, I agree are best avoided if another choice is available. Usually futures contracts are used with the commodity ETFs and some foreign ones (China and India come to mind)
I thought VGK was a fund and was looking for Vanguards ETF equivalent. Didn't realize it was an ETF. Europe is having all kinds of issues so I imagine this fund and the stocks it holds are depressed right now. Whether that is a bargain or not will depend on the companies future earnings which will also effect the fund yield.
>>>>>
VEA is europe/pacific(MSCI EAFE) while VGK(MSCI Europe) is europe only. I could not find the VEA yield on the vanguard website.
At this moment i see two problems with ETFS:
1- synthetic ETFS(use of futures). AVOID THEM.
In 2008 I remember that commodity ETFs which were dependent on AIG did not trade for a week or so, until Paulson did his thing.
At this moment I would avoid any synthetic ETFs, like DBC. Also in France and Germany there are quit a number of synthetic ETFs at the moment that will get into problems when the banks blow up(after a Greece event or an Italian event) <<<<
Toofuzzy
Hi toofuzzy,
VEA is europe/pacific(MSCI EAFE) while VGK(MSCI Europe) is europe only. I could not find the VEA yield on the vanguard website.
At this moment i see two problems with ETFS:
1- synthetic ETFS(use of futures). AVOID THEM.
In 2008 I remember that commodity ETFs which were dependent on AIG did not trade for a week or so, until Paulson did his thing.
At this moment I would avoid any synthetic ETFs, like DBC. Also in France and Germany there are quit a number of synthetic ETFs at the moment that will get into problems when the banks blow up(after a Greece event or an Italian event)
This weekend there was a warning here by the Society of Equity Investors to get out of these ETFs!
2- Lending failures.
I know of 2 lending failures now:
There was the case of a DBX Europe tracker that suddenly was invested in Japan smallcap.
The other is the AMUNDI(Credit Agricole/Socgen) MSCI Netherlands ETF, which contains 95% Swedish equities. I can assure you that Sweden is not part of the Netherlands!
These are the things I know from my own experience. There will be more issues that we do not know yet. Vanguard is the only company that will return the lending profits to the ETF. Other companies will take 50% of those profits. The investors have the risk, the ETF supplier the profit.
What to do? :
1- I will always take a Vanguard ETF when I have the choice.
2- Look for opportunities elsewhere(CEF for example)
3- Maybe forget about ETFs and create a Graham like portfolio of stocks. (I discovered this holiday that Graham was kind of an AIMer before Lichello published his book)
Best Regards,K
Hi Karw
Vanguard also has an ETF that matches VGK (VEA)
I wonder how that compares
Toofuzzy
Hi K, Re: ETFs and who's profiting........
Thanks for the notes on those three ETFs. That's an interesting point of view.
Some Closed End Funds charge higher annual fees, but not all. Maybe we should sort ETFs against similar CEFs to see what the long term performance difference might be.
Thanks,
Tom
Hi Tom,
I noticed the following:
IMEU MSCI Europe Div%: 3,5% ER: 0,35% (europe based)
IEV S&P Europe 350 Div%: 3% ER: 0,60% (US based)
VGK MSCI Europe Div%: 5,3% ER: 0,14% (US based)
This article sounds scarier than the reality of using most ETFs, but does point out the fact that there are so many new ones that are a far cry from the original idea of "index" funds traded daily.
http://www.advisorperspectives.com/newsletters11/The_Risks_of_Exchange-Traded_Products.php
I've gone back to look at many of my own ETFs to see if short selling is allowed, for instance. Most do allow it. Some allow options to be traded, too.
Many of the new products are drifting further and further from the original "index" ideal. All I need are the main business sectors in equal weight format filtered for value or growth and I'm content.
Any further thoughts?
Best regards, Tom
Reviewing your ETF holdings for Upside and Downside Capture Ratio.......
A true index fund should, in theory, capture exactly the upside and downside of the index exactly. However, today in the world of ETFs we find many semi-active managed funds available. These are a little harder to benchmark than pure index ETFs and funds. How much is that extra layer of management worth to us?
I note that MorningStar how has Up and Down capture ratios listed in their Ratings and Risk heading for exchange traded funds. ( http://performance.morningstar.com/funds/etf/ratings-risk.action?t=FVL®ion=USA&culture=en-US ) Looking at PYH and FVL for the last year and three years shows FVL having a better set of numbers:
Fund Upside Capture Ratio
1 Yr 3 Yr 5 Yr
FVL 134.09 101.36 99.64
PYH 87.40 84.59 N/A
Downside Capture Ratio
FVL 101.32 112.59 116.13
PYH 105.63 119.37 N/A
Hi Lisa, Re: FVL and history with the Value Line based ETFs.....
While I've only had FVL since last July (after PowerShares changed from Value Line's index) I'd owned the PHY (Timely stocks in timely industries from Value Line) for a few of years before that.
I own this ETF in my retirement account as one of ten positions in that portfolio. It did okay coming out of the 2009 lows, but didn't do as well as Small and Mid Cap Value type holdings. 2010 turned out to be a very good year for it, especially after August. Through most of 2010 it outperformed many of the small and mid cap value funds. I think the lag is due to the Value Line #1 Timely stocks being somewhat more of the "growth" nature and growth was out of favor for a year after 2009 lows.
As you can see by the trading, it does move around enough for it to be interesting for AIMers. It has an annual cost of around $0.70/$100, so it's not the cheapest index fund around. However, Value Line takes a cut of that, too, for their index license and name rights.
The FVL ETF follows the 100 stocks ranked by Value Line as #1 in Timeliness for ownership and freshens their inventory of stocks once a quarter. So, in general it will be following the group #1 stocks as seen in this graphic from Value Line:
This shows the 2010 returns for Group 1 when re-structured once a quarter for rank changes:
The results compare favorably to FVL's 2010 gain of about 28.3% for the year. So, quarterly reconstitution doesn't seem to hurt the performance. Weekly reconstitution doesn't improve things much as the #1 Timely stocks list doesn't change very quickly.
Because Timeliness #1 Stocks tend to be "momentum" driven, they can take a serious wallop when markets turn ugly. Therefore, AIM with a healthy cash reserve is a great management tool. It's nice to think we'll be participating in a near 14% per annum average gain on the invested side and then adding value with AIMing on top of that over many cycles.
I hope your investing continues to do well.
Best regards,
Tom
Nice analysis, Tom!
Two to keep tabs on.
Re: PYH vs FVL................
Last year PowerShares changed their PYH ETF from using Value Line's "Timely stocks in Timely industries" to another base index. I'm not certain of the reasoning, but since I'd selected PYH as a proxy for Value Line's Timeliness rankings, the change meant I had also to change my holding.
First Trust's FVL had been around slightly longer than PYH and also uses Value Line's top 100 most timely stocks. This is slightly different from the PYH basis, but was far closer than the modified PowerShares version. So, FVL became my choice.
After the change became effective (end of June, 2010) I decided to periodically track progress between the two funds. Here's the latest snapshot from July 1st to date.
While the PYH ETF has continued to rise, it is now looking more like an "all cap value" fund. FVL, for this short history, has been able to outdistance the PYH etf by a considerable amount.
It pays us to review our ETFs periodically to assure ourselves that they have not changed their basis of structure and that they still fit in our overall portfolios where we initially had them slated.
Best regards,
Tom
Hi Doug, Re: SPY back testing......................
Thanks for the summary of the SPY holding being AIM'd for the long time frame shown in your example. For most people, a decade is a very long time to wait for gratification, so showing what patience adds to one's value is a good thing.
Appreciatively,
Tom
Just updated the back-test through 12/2010. Here is the link:
http://hubpages.com/hub/robertlichelloAIMSystem
Your feedback is greatly appreciated!
Thanks, Doug
Sorry message posted to wrong thread.
Larry G
I have been giving a lot of thought to this deep-diver dilemma which has basically kept me out of the market because 2008-2009 scared me to the bone. I have read all the posts about a stop loss level and ladders but none of them make me warm and fuzzy (don't even go there Toofuzzy). Here is my what if. Let's say we use the stop loss (10 month, 200 day or whatever makes us comfortable) and we make no real buys on the way down under that stop loss level. But some will say we are loosing buying opportunities so we make virtual buys on the left side of the V curve but we turn them into real buys on the left (up) side of the V curve at the same exact price using GTC orders or buy stop orders or whatever you call them. That way we are getting the same buy but we are in a uptrend and hopefully that up trend will continue and if it doesn't we stop buying until the uptrend continues and buy again on the right side of the curve when we get to the next buy level. Now I am sure it isn't as simple as that because we are entering the buys on the down left side of the curve but they are actually virtual and when we actually do make these buys on the up cycle on the right up side of the curve I don't know how the software well handle that and I don't care as long as I am comfortable with knowing where the bottom finally came. I know it could be a double bottom or triple bottom but I would still feel better. Just food for thought.
Larry G
Hi Lisa, Re: CHY....................
It's still one of my core holdings in my retirement account. I'm glad I could average down during the Big Slide in '08 and '09 and then bank some cash when it rebounded. THe distributions still make me smile. Current yield is around 8.5% which beats money market funds nicely!!!
Best regards, TV
Hi Tom,
Thanks for the info and review!
BTW: How's ol' CHY looking for you? I'm still in and profitable.
PYH - Powershares Value Line Timely Stocks in Timely Industries.....
This ETF by PowerShares is changing its basis for indexing. The new fund, still PYH, will be called the MorningStar StockInvestor Core Portfolio and be indexed to a MorningStar index of the same name.
"The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. The Index is comprised of approximately 50 stocks of high-quality companies selected by Morningstar. The Index is reconstituted and rebalanced quarterly using the methodology described above."
--------------------------------------------------------------
I've used PYH in my IRA as a central part of the equity side of that account. I did so because of the high volatility of the Value Line Timely Stocks and their "momentum" character. This change creates overlap with several other positions in my IRA, so I've sold the PYH and have replaced it with First Trust's Value Line 100 ETF, symbol FVL.
FVL has a bit higher annual expense ratio, but also has slightly higher BETA, which should help compensate.
Best regards, Tom
OT when a company issues more shares
Many times a company does what I think are stupid things like buying back stock when it is near its high or selling more stock near its low ..... why ... how is it rational.
NLY (a mortgage REIT) is issuing 50 MILLION new shares towards its high price which makes sense BUT it has a 15% dividend yield!
So shouldn't they be able to borrow money cheaper than the dividend payout?????
My thought is if they are selling the stock they do not believe it is worth more than they are selling it for now.
If they use the new money to reduce leverage the dividend goes down. If they leverage back up and rates go against them (short rates climb) guess what ...... dividends go down! I don't know how this helps the company.
Very
Toofuzzy
Another on ETF's and retirement asset allocation
http://seekingalpha.com/article/210314-etf-asset-allocation-for-smart-401ks?source=email
Good article on asset allocation
http://seekingalpha.com/article/213562-asset-allocation-investing-with-styles-can-pay-off
Toofuzzy
Tom,
ETF setups for retirement and investment accts. Here is a link to another artical. http://www.myplaniq.com/LTISystem/UserFiles/tutorial.pdf
Been many years since I last visited/posted. Good to see that you are still going strong. Visited you home page. Couldn't quite figure out your "good bye" message on your newsletter page. Comforting to see you still active here.
Thanks Tom
I remember starting out with ETF's when switching from funds trying to decide whether to go with "style" or "industry" diversification.
Toofuzzy
Hi Toof, Re: Structure of retirement account.........
1) There were two reasons why I changed from Industry to Style. The first one is that there wasn't enough "criticl mass" to get the level of diversification I desired for the account in sector funds. To get that diversification I would have needed probably 13 to 18 separate ETFs/CEFs which would have subdivided the Pizza into too many slices.
The second was the reading of the Ultimate Buy/Hold Strategy article. I liked its simplicity and diversification. I also thought that any Buy/Hold strategy worth its weight would probably benefit from the use of Lichello's plan. My thought was that it would be an interesting experiment to see if AIM could enhance UBHS over time and cycles.
I started the restructuring in the later part of 2007 but never got it completed before the income side of the account headed downward. Therefore, I had purchased all the new pieces, but not sold enough of the income side to fully fund proper cash reserves for the new slices. So, for the first year it was very close to UBHS in that it was under funded with cash.
2) I originally purchased EEM but switched to DEM; purchased IJS but switched to DES; bought IJJ but switched to DON; bought EFV but changed to DTH; and last, bought NRO but changed to VNQ. Most of these changes occurred in January of 2009 when I finally completed the proper balancing of the account closer to the UBHS.
There's now ten pieces plus cash. I'm contemplating one more change should the opportunity present itself. I'm not exactly sure how it will work. More on that later.
Best regards,
Tom
Tom RE IRA Portfolio
1) Why did you decide to switch from INDUSTRY to STYLE
You could have kept IYE IBB IYG IYW and CHY/ACG and added 3 foreign funds (large value , small value, emerging market) and a metals fund and a REIT fund ( I thought you owned one already)
2) Why did you decide to go with Wisdomtree for most of your funds instead of I-shares which I think has cheaper fees and similar returns
IVE for large value
IWN for small value
ICF REIT
EFA for Foreign large cap
I may eventually simplify my own portfolio to
IVE large value
IWN small value
EFA foreign (and maybe China, Brazil, India, Austrailia funds)
ICF REIT
SHY / TLT US bond (depending on interest rate curve TLT when rates invert)
SCCO Southern Copper Company
Toofuzzy
Capitalization weighted or equal weighted?
Tofuzzy
Most portfolios that use indexing will have a fund or exchange-traded fund that tracks the S&P Index. In fact, the S&P 500 has put together a strong move since March, but not all the stocks in the index have performed as well. During a downturn, it tends to be the smaller companies that lead the way out of the darkness, and that is proving true again. The largest companies, the mega caps, have actually lagged as a group.
While there are 500 companies in the Index, it gives much greater representation to the largest of the large-capitalization companies, so they influence its performance the most. The largest 50 companies currently represent 52.0% of the S&P 500’s performance. However, when the 500 companies in the Index are put on the same footing, we get a different view of the S&P 500.
The S&P 500 Equal Weighted Index, which gives all 500 companies equal representation and doesn’t favor the mega cap stocks, has significantly outperformed since the mid-March low, rising 50.2% at close last Friday, versus a gain of 34.0% that day for the S&P 500.
The contrast in performance doesn’t stop there, however. The Equal Weighted Index has outperformed for more than 10 years! It has risen 31.0% since 1998 while the S&P 500 has declined 7.0%.
Granted, even though these indexes include the same stocks, they are totally different animals. They have different earnings growth characteristics, price-to-earnings ratios, levels of volatility, and risk profiles. Typically, the Equal Weighted Index tends to be higher in all of these measures.
In the current environment when the stock market is trading in anticipation of an economic recovery, the S&P 500 Equal Weighted Index will continue to get more traction in the near- and mid-term. For investors who would like to track the S&P 500 Equal Weighted Index, there is an exchange-traded fund that attempts to mimic its performance: the Rydex S&P Equal Weight ETF (ticker symbol RSP).
Check it out for yourself. Compare RSP to SPY, which tracks the regular S&P Index. (You can compare the charts on the Yahoo Finance page.) The contrast is stark!
June 1, 2009 • 12:13 PM
From www.womenwithportfolio.com
Exchange Traded Funds
I want to write a post to the AIM ETF board to make sense of the various providers and how they compare and overlap. I wanted to cover the series that cover the market without overlap of holdings and leave out the leveraged 2 and 3x funds etc. I may do bonds in the future. I would like to explain what indexes they are based on in a rational matter. I wanted to cover the funds that are broken down into the 9 or 10 industry sectors. This list is probably not complete. There are also many more funds that cover various sub-sectors.
Some of these funds have more volatility than you might want for a taxable fund. Check Yahoo finance (Profile) Look in the lower right corner of the page.
Toofuzzy
There are a few S+P funds
SPY, IVV, RSP (equal weight) and VV from Vanguard is almost a S+P 500 fund along with FEX from FIRST TRUST
There are a few fund companies that divide the S+P 500 in to 9 or 10 sectors
The sectors in general order are:
Consumer discretionary, Consumer staples, Energy, Financial, Health, Industrial, Materials, Technology, (Sometimes Telocom), and Utilities. Sometimes there are REIT funds which would have a bit overlap.
SPDR INDEX
xly, xlp, xle, xlf, xlv, xli, xlb, xlk, xlu in addition there are some other "X" series funds
xme, xrt, xes, xsd, xop, xhb (which must have some overlap with the above)
www.sectorspdr.com
Fees are .22%
Together, the nine Select Sector SPDRs represent the S&P 500 as a whole. They are capitalization weighted.
VANGUARD ETFs
vcr, vdc, vde, vfh, vht, vis, vaw, vgt, vox, vpu, and vnq (REIT)
www.vanguard.com
Fees are generally .2%
The fund employs an indexing approach to track the performance of the MSCI U.S. Investable Market index. (total US market) It is market capitalization weighted.
RYDEX Equal Weight
rcd, rhs, rye, ryf, ryh, rgi, rtm, ryt, ryu
www.rydex-sgi.com
Fees are .5%
The investment seeks to replicate, before fees and expenses, the performance of the S&P Equal Weight index.
FIRST TRUST (QUANT)
fxd, fxg, fxn, fxo, fxh, fxr, fxz, fxl, fxu
Fees are .7%
www.ftportfolios.com
The index is a modified equal-dollar weighted index selects stocks from the Russell 1000 index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX(TM) screening methodology.
POWERSHARES QUANT funds
pez, psl, pxi, pfi, pth, prn, pyz, ptf, pte, pui
in addition they have pkb, pxe, pic, pxj, pmr, pjb, ptj (which must have some overlap in holdings with the above)
www.invescopowershares.co
Fees are aprox. .65%
The Dynamic Intellidex indexes evaluate companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. Securities shown to possess the greatest capital appreciation potential are selected for inclusion in the index.
In addition I-Shares has DOW based INDUSTRY FUNDS
iym, iyc, iyk, iye, iyf or iyg, iyh, iyj, iyw, iyz, idu, and IYR or ICF (REITS) in addition there are
ibb, ieo, iez, ihe, ihf, ihi, iai, iak, iat, ita, itb ( which must have some overlap in holdings with the above)
www.ishares.com
Fees are aprox. .48% for the main sectors
The investment seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Consumer Goods Index. (which is broader than the S+P 500) It is capitalization weighted
The foreign funds broken down in to the matching 9 sectors are:
SPDR S+P GLOBAL INDEX (ex-US)
ipd, ips, ipw, ipf, iry, ipn, irv, ipk, ist, ipu, and rwx (REIT)
www.spdrs.com
Fees are .5%
The investment seeks to replicate, net of expenses, the S&P/Citigroup BMI World ex-US Sector Indexes.
I-SHARES S+P GLOBAL (includes US companies)
rxi, kxi, ixc, ixg, ixj, exi, mxi, ixn, ixp, jxi
www.ishares.com
Fees are .48%
The investment seeks results that correspond to the price and yield performance, before fees and expenses, of the S&P Global Sector Indexes.
WISDOM TREE INTERNATIONAL (QUANT ex-US )
dpc, dpn, dka, drf, dbr, ddi, dbn, dbt, dgg, dbu, and drw (REIT)
www.wisdomtree.com
Fees are .58%
This fund series pays particularly high dividends because it is dividend weighted. That might be dangerous if an industry like banking has high dividends just before they go down the tubes.
The investment seeks to track the price and yield performance, before fees and expenses, of the WisdomTree International Sector indexes. The fund uses a representative sampling strategy. The index measures the performance of companies in developed markets outside of the U.S. that pay regular cash dividends on shares of common stock. Companies are weighted in the index based on regular cash dividends paid.
Hi Tom RE Wisdomtree Funds
Are any significant amount of their dividends a "Return of capital" or from trading profits? as opposed from earnings?
Toofuzzy
I posted this on the Haiku board
When impossible
becomes inevitable
Then risk becomes known
my debt to
Alexis de Tocqueville
Toofuzzy
Just published a 10-year back-test of Lichello's AIM system. Here is the link:
http://hubpages.com/hub/robertlichelloAIMSystem
Your feedback is greatly appreciated!
Thanks, Doug
Hi Tom101
We have discussed this ad nausium in the past and decided there are issues with the 2x and 3x funds (and particularly the inverse funds) that make them not the best choices for AIMing. While volatility is a good thing I guess you can have too much of a good thing.
In general I happen to like to AIM ETFs either by style or industry. They are safer than AIMing individual stocks in that they can't go to zero.
Thanks for the question
Toofuzzy
Is anyone using the 3xETFs with the AIM system?
If so, how are your real results.
If not, are there issues?
Hi Toof, Re: getting one's MoJo back.........
Here's today's trade in my IRA (finally a SELL!):
The stacked bar graph is a bit confusing in that I robbed Peter to pay Paul back in February when I reworked the portfolio toward what I'd wanted - a real time version similar to the "Ultimate Buy and Hold Strategy." CHY is one of ten components and represents about 18% of the total value.
This is the effect on the total portfolio:
The patient is still in a coma, but there's signs of brain wave activity.
TV
Hi Cindy
I originally AIMed two mutual funds from 1995 to 2003 when I decided to switch to ETFs. I struggled with the decission of investing by style or industry and eventually bought 10 industry I-Shares funds and later a few individual stocks. I am thinking I want to simplify things now.
A while back I posted my idea for what I call "slow AIM". Basically it is what most indexing proponents propose. Buy a few diversified funds with your age invested in a short term US treasurey bond fund and rebalance once per year at most.
That has you buy stocks low and sell stocks high just like AIM.
So I came up with a portfolio of
IVE (large value)
IWN (small value)
EFA (foreign) could be split into other funds (fxi, eeb)
ICF (REITS)
and IEF (US Treasury)
I would make the first four equal value each year and IEF would be kept to my age %
At the present time the bond fund could be SHY and when rates peak (invert) again could be switched back to IEF.
The above is the most simple investing method I could come up with. It is what I suggest to people who are just starting to get in to investing and / or are investing phobic.
I still struggle with wanting to own individual stocks though for a few reasons. None are valid in terms of investment results for me.
1) With all the money in funds, no one has any control of company governance or executive pay.
2) I would like to cherry pick what I feel are the better stocks in an index. This would make more sense if I was using industry funds. (In reality I am a lousy individual stock picker and timer)
Not always,
Toofuzzy
Hi, Toofuzzy, Good advice. I have bought sector ETF's and am happy with the choice. If anyone can be happy in these trying times. Buying as an investment goes lower is a different and unsettling experience. I'm just focusing on the long term with the belief that it will work out in time. I like this much better than trying to second guess the course of growth stocks. Yes, I'm losing money as the market goes down but I was also losing getting stopped out. It is rather nice being able to buy at better prices. I can see a time when I may be pleased with a pullback. I do appreciate hearing the experiences of all of you who have done this for awhile. There's a lot to learn. Cindy
Hi Cindy
>>>I am new to AIM and have read the boards and Lichello's book. Does the decreased risk in using sector ETF's outweigh the increased volatility of individual stocks in terms of the effectiveness of AIM?<<<<
I will second Tom's reply. ETFs and mutual funds can't go to zero. That is very important with AIM since it has you buy as a security goes lower.
You can diversify by style (large, small, forien, REIT, bond) or by industry.
Don't try to maximize returns by getting fancy. Getting rich slowly avoids going broke fast.
Toofuzzy
Hi Clive, Here's hoping the bunnies have plenty of alfalfa!!!
Best regards, Tom
Thanks Tom. I'll have a more detailed look. First impression however is that DON does look a bit overweight in financials.
I opine that we've seen the prolonged bull, have already suffered a (hopefully signficant) proportion of the bear correction, are back to around fair long term price levels and are now due to enter a prolonged bunny period.
Such times are when AIM like investing really shows its worth.
Best regards. Clive.
Re: Portfolio Design with ETFs.............
Hi K,
You're moving in a good direction. As we're finding out, all funds aren't created equally. I was mindful of slightly higher annual costs in some of these substitutions. I am also mindful of some lower daily trade volumes - but my account is small enough that it shouldn't be an issue for me.
I agree, the "international" funds from Wisdomtree are quite attractive, too.
Best regards, Tom
Hi Clive, Re: High Yielders...................
Well, these new ETFs are a long way from being "individual company stocks." These ETFs are formulated with an emphasis on dividends no matter where their location.
For instance, I switched from IJJ (Barra Mid Cap Value Index) with a yield around 5% to DON (Mid Cap Dividend Fund) with a yield of around 7%.
Industry Diversification As of 09/30/2008
DON IJJ
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(From ETFConnect.com)
Hi Tom,
It is nice to see you move into the Wisdomtree ETFs.
I have been buying into them as well since october.
The end of year dividends were very nice!
Your idea of rotating ishares into Wisdom makes sense.
I will start looking at that as well.
Nice thing is that Wisdomtree is using quarterly divs now!
Wisdomtree offers international sector funds. That together with for example Powershares sector funds would be a nice basket.
I am looking at something like that.
For now i have DON, DES and DLN for the US market.
Kind Regards,K
Hi Tom. Re: Higher Yielders
The subsitutions were generally done to attain higher dividends for now. My hope is that the higher yield will help total return in the long run.
I've been doing a bit of the reverse and moving out of individual high yielding stocks and more into market index funds.
I felt uncomfortable under recent conditions as to (a) the survivorship of even the largest of household name stocks and (b) the security of dividends (and associated impact upon share price that dividend/earnings cuts might have) - so I opted to migrate towards market wide indexes for the greater security against total failure(s), using a style that expands exposure up to a maximum of 200% in order to generate the desired additional volatility.
Unlike you (now that you're back in the rat race and have a wage coming in) I depend solely upon investments for income and haven't the luxury of riding out dividend cuts. So my income is now largely being derived from volatility capture. I'm using the Dow as the principle holding as I wanted UK Pound currency diversification and have my Ladder set to a 19000 top (100% out) and 3642 bottom (200% in). The Ladder is structured to become fully 1X exposed at around current price levels, below that I start adding in 2X exposure progressively until its fully 200% stock exposed at that bottom price level.
Under current volatility levels that should generate sufficient net volatility capture benefits for my living expenses.
I had initially started with a 5700 Dow bottom price level, but felt more comfortable passing on some of the additional volatility capture benefits for the greater downside cover.
When things start to stabalise I'll revert back into high yield individual stocks once the outlooks appear more certain.
Best regards. Clive.
Clive, Thank you again for your help. I can handle a portfolio of sector ETF's. I have played around with zig zag for IBB to choose a percentage that has several buy/sells a year then added 2x minimum order % + Buy Safe + Sell Safe (adjusting minimum order size) to match the percent used in zig zag. If I have figured well I should have some action during the year. Is that right?
I really like your suggestions about how to use 1x and 2x together. Knowing me I am going to want to try that but not yet. I would like to get some idea of how more basic AIM works and how it feels emotionally. After being beaten up by this market I think I need to go slowly. Happy investing to us all! Cindy
Hi Clive, Re: Rebalancing Portfolio Control to Model......
I did this recently with my retirement account. I also switched a bunch of the components to be of a "better" nature.
http://www.aim-users.com/etfunds.htm
I'd never quite gotten the full Ultimate Buy/Hold Strategy in place because of market conditions in November of 2007, so took time now to get the Income components balanced against each other as well as the other pieces.
The subsitutions were generally done to attain higher dividends for now. My hope is that the higher yield will help total return in the long run.
Best regards, Tom
Hi Tom, Re: Rebalancing of ETF holdings on a periodic basis....
...rebalance the PCs toward the model rather than the value of the holdings....
Reducing the PC of the one that has drifted higher than its target then tends to push some selling. Increasing the PC of the one that has underperformed the group tends to push the buying.
That's a really neat idea Tom. I like it :)
Hi Clive, Re: Rebalancing of ETF holdings on a periodic basis....
One thing I've been doing is mearsuring the drift of the Portfolio Control value of each holding from the original model. This is slightly different from measuring the direct value of each position against the original model.
Since the Price/Share has a "hold zone" range that can vary day to day, it seemed to make more sense to rebalance the PCs toward the model rather than the value of the holdings. This seemed a "gentler" adjustment.
Reducing the PC of the one that has drifted higher than its target then tends to push some selling. Increasing the PC of the one that has underperformed the group tends to push the buying.
So, it has the net effect of being similar yet won't necessarily drive buying or selling immediately. (it could, but usually only when the markets have been "dramatic" in their movements)
Best regards, Tom
If you then periodically rebalance between those, reducing the ones that have risen the most, adding the proceeds to the ones that have performed less well, then you'll also be doing a bit of a AIM like style across the individual accounts.
One way to do this is to maintain weightings of each individual AIM account (cash+stock) and when any one becomes 50% more than the median then reduce that account by 20% to 25% and add the proceeds to the AIM with the lowest weighting.
For example if I had 5 AIM's each individually holding a single ETF then the initial weightings (cash+stock) might be 20% of the total fund value each. When any one AIM rises to 30% weighting of the total fund value then reduce that account by 20% to 25% e.g. 6% to 7.5% (dragging its weighting down to 22.5% to 24% relative to the whole), and add that 6% to 7.5% to another AIM account that might have declined to perhaps 14% weighting (uplifting it by 6% to 7.5%).
Such action will typically involve just one partial ETF sale and another ETF buy. If in contrast you attempted to rebalance all parts back to equal weightings periodically then that would involve more sells/buys (higher trading costs).
I'm feeling more confident that sticking to sector ETF's is the way for me to go at this time. Also got the message that larger trades less often are more profitable than small and frequent.
Larger trades less often are not always more profitable. It's a balancing game. If the trade range is too wide then the position becomes little different to that of buy-and-hold, never adding nor reducing.
On a gross basis the smaller more frequent gains should compare equally to larger less frequent gains. Where the larger trades however are never triggered then the smaller more frequent approach is generally the better (for volatility capture benefits). Where the two compare on a gross basis however then obviously the fewer large (less brokerage fees) trading approach is the better choice.
ETF's are a good choice of candidate holdings but require a sizeable amount of funds to be able to diversify across a range of such ETF's (if AIM'ing each individually). Generally you'll want to invest no lower than $20,000 in stock value (perhaps $30,000 total) per ETF AIM account.
Where funds are limited then you may be better served with a single market ETF such as one that tracks the Dow. The initial appearance is that Index funds don't provide sufficient price volatility for AIM's needs - however - consider as an example one of Tom's IRA ETF holdings - DLS. Since mid June 2006 to present DLS had an average of 1.53% daily high/low price range. In contrast the Dow had 1.2%. If instead of the Dow the DDM (2X Dow) had been used then the daily high/low average range was 3.3% over the same period.
Which implies that a blend of 1.2(Dow) + 3.3(Ddm) = 1.53(Dls) (e.g. a blend of 15.7% DDM and 84.3% Dow) would have been comparable in daily volatility terms to DLS over that period.
On an actual gains basis DLS made a -40.6% loss, the Dow -27% and DDM -63%. On the one hand we have DLS declining -40.6% and on the other we have a blend of 84.3% Dow and 15.7% DDM exposure declining a combined -32.65% (in proportionate terms).
A benefit of using a blend of 1X index and 2X index in such a manner is that you don't actually need to use the 2X until all of your cash reserves are exhausted. If for instance currently 60% 1X and 10% 2X exposure levels were being indicated then that amounts to an overall exposure indication of 80%, which could be actually managed by holding 80% in the 1X and thereby avoiding the generally higher costs involved under 2X funds.
Another factor is that a blend of ETF's will at times have some up, others up less (or down) which overall will have a tendency to make the overall ride smoother. If you then periodically rebalance between those, reducing the ones that have risen the most, adding the proceeds to the ones that have performed less well, then you'll also be doing a bit of a AIM like style across the individual accounts. This is where over the longer term the multiple ETF AIM approach can add value over the single Index AIM based approach.
Hi Cindy, Re: Interesting Posts...................
We have collected a lot of Q&A stuff here. There's lots of good ones at:
http://investorshub.advfn.com/boards/board.aspx?board_id=992
Other than that, I guess we'll have to wait for me to write my memoirs!
Best regards, Tom
Tom, I have spent hours reading all the very old posts and have learned the answers to most of my questions. What a gold mine the old messages are! Thank you so much for your messages now and in the past. I'm feeling more confident that sticking to sector ETF's is the way for me to go at this time. Also got the message that larger trades less often are more profitable than small and frequent. Is there a collection of old winning messages somewhere on the Board? I have started my own but it would be nice if it already exists. Cindy
Hi CindyH, Re: 2x Funds - both bear and bull funds......
These funds tend to have relatively high internal costs. Also, they are built to match the changes in an index on a daily basis, not necessarily consistent with yearly efforts.
There are three things that an investor can look at as goals. They're not mutually exclusive, either.
1) Price Appreciation over time
2) Dividend Capture ofer time
3) Profitable Volatility Capture over time
AIM is a method of #3 but will work with either #1 or #2. One's Total Return usually will be some combination of the three. In the case of AIM users we can improve our total return through methodical capture of the markets' price movements over time. This can be with positively correlated or negatively correlated investments.
The very short list of things we can control as investors includes our own costs and also, through selection the annual costs of the funds we choose (assuming we're not looking at individual company stocks). So, selecting for low cost investments helps our total return as does keeping our trading costs as low as practical.
AIM doesn't necessarily need #1 as is shown in Mr. Lichello's study. We can do well with cyclical stocks and industries even if we don't see "higher new highs" even over years. As long at there's reasonable percent change between annual highs and lows, AIM should be able to trade profitably.
Hope this helps,
Tom
The advent of Exchange Traded Funds (ETFs) has brought a new way to use AIM on various Market Sectors. They offer an easy way to own and trade entire sector indexes without the expense and inconvenience of the typical open end mutual fund. Closed End ETFs (CEFs) offer yet another interesting alternative and some extra BETA because of their Premium/Discount range.
With AIM, we like to make our trades when the price/per share meets our requirements. With traditional mutual funds we never know exactly what the end of the day will bring - but that's what the basis of our our trade price will be. Using ETFs we can use "Good 'til Cancelled" Limit Orders to trade when our price is met, or trade any time during the day at the current bid/ask prices.
Diversified mutual funds usually don't have the ingredients that AIM likes - Frequency and Amplitude of price change. This is because their money is spread over many different business sectors of the economy all moving in their own directions. Individual sector funds look as though they will give us many more opportunities to capture volatility than do traditional diversified mutual funds. As this graphic shows, individual sectors perform well at different times in the economic and market cycles.
ETFs can be selected from a wide variety of industrial sectors, individual country funds and also from "value" or "growth" by size of capitalization. This offers us the chance to build a portfolio of our own that is easily as diversified as any mutual fund. If we use ETFs we preserve much of the frequency and amplitude of each sector that AIM uses for creating trading profits. Each sector seeks its own level while AIM adjusts properly for the changes. Overall the portfolio benefits from extensive diversification while also improving AIM trade related returns.
An interesting article on building the "ultimate buy-and-hold" portfolio can be read at:
http://www.fundadvice.com/articles/buy-hold/the-ultimate-buy-and-hold-strategy.html
Constructing an ETF portfolio using the component ideas mentioned in the article would give an individual a very well diversified portfolio. Here is my account compared to similar indexes over a year's time:
[chart]www.aim-users.com/UBH_vs_Index.gif[/chart]
GENERAL INFORMATION ON ETFs
http://quotes.nasdaq.com/asp/ETFsHome.asp
LOOK UP SPECIFIC INDUSTRIAL SECTORS AS ETFs
http://quotes.nasdaq.com/asp/ETFsSector.asp
POWERSHARES ETF SITE
http://www.powershares.com/
INFORMATION ON ETFs
http://www.etfguide.com/etftickerguide.php
MOST POPULARLY TRADED
http://money.cnn.com/funds/etf/mostpop/
HEATMAP OF ETFs
http://screening.nasdaq.com/Heatmaps/Heatmap_ETF.asp
SPECIFIC INFORMATION ON CLOSED END ETFs (CEFs)
http://www.etfconnect.com/
TOM'S RETIREMENT ACCOUNT BUILT WITH ETFs
http://www.aim-users.com/etfunds.htm
EXAMPLE OF NON-U.S. ETF PORTFOLIO
http://www.aim-users.com/exusetf.htm
MORE ON A.I.M. (Automatic Investment Management)
IHub - http://www.investorshub.com/boards/board.asp?board_id=949
Web Site - http://www.aim-users.com/
Best regards, Tom
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