A.I.M. Users Bulletin Board

[OldAIMGuy]

Hi Allen, Yes, That's Consumer Staples which is the every day stuff we buy and use. This is in contrast to Consumer Cyclicals which are the things people buy to go along with a new house, remodeling, and new transportation.

There are several providers of essentially the same business sectors in ETF and mutual fund format. Personally I have experience with I-Shares, PowerShares, 1st Trust shares and Profunds (but they're traditional mutual funds). There's also sector funds available from Vanguard and Guggenheim in ETF form as well as others.

These can be differentiated into 1) traditional capitalization weighted indexes, 2) equal capitalization weighted and 3) "filtered" indexes. The filters usually attempt to eliminate the weakest companies from the sector based upon fundamental and technical considerations. Think of the movie, "The Good, The Bad and the Ugly." The filtered indexes attempt to eliminate the Ugly and many of the Bad. That way they should have better overall performance than either the cap weighted or other simpler indexes. One final group comes from ProFunds which through leverage attempt to daily execute a 1.5X differential to the underlying index.

My own review shows that there is no clear winner as of yet across all sectors. Sometimes cap weighted shows the best performance; sometimes equal weight; sometimes filtered. There's enough information around now to build out a nice spreadsheet of annual high/low ratio, BETA, annual expense ratio and annual performance. With such info one can then determine the best provider for each sector. If there were a clear winner as a provider life would be far simpler.

The overall performance differential is not as large as one would think for the different methods of assembling these sector ETFs. Only the ProFunds sectors offer any substantial difference. That difference, when good, is very very good, but when bad, it's very very bad! Here's a quick example:

Basic Materials Sector - Various Providers........... 
 Symbol             2011 Price Change 
 XLB                    -3.3% 
 PYZ                    -9.6% 
 FXZ                   -10.6% 
 IYM                   -16.9% 
 BMPSX                 -27.0%

Which one was "best?" Which one was "Worst?" Much depends upon whether one is Buy and Hold or using AIM. Much depends upon what happened after 2011. If the markets had continued downward, then the ProFunds would have been the worst to hold. If the markets rebounded and Profunds did the deepest buying with its AIM Cash, then possibly it would have been the best to own. XLB and PYZ might not have bought any additional shares and the same might be true of FXZ. IYM might be borderline for accumulation. ProFunds' BMPSX certainly moved downward enough to be in the accumulation mode with AIM.

So much depends upon the point in time that the measurement is done that it's not a simple task to determine which is truly the 'best.' I posted here years ago that the sector component which increased Portfolio Control by the greatest amount over time would eventually be the winner. With the example above, all other things being equal, the Profunds component would have most likely increased Portfolio Control the greatest amount during 2011. Remember, another year might provide different results.