An emerging theme in investing is the growing popularity of Low Volatility ETFs. This has been driven in part by the recent performance and asset growth of the PowerShares S&P Low Volatility ETF (‘SPLV’).
Our recent analysis of SPLV showed an unexpected result: Over the time period since January 1, 2007, SPLV has had more of a growth tilt than a value tilt. This is very unexpected, since low volatility has traditionally been identified with value investing. A closer look reveals that since the beginning of 2007, U.S. growth stocks have actually been less volatile than U.S. value stocks. This… see full post
Posted in Volatility
Tagged DVY, SPLV
The stock in the news recently is Apple Inc. (‘AAPL’), which is down substantially from its high of $702 in September 2012. When it will rebound is the cause of much debate. Investors who don’t directly own the stock may still have significant exposure to it through their ETF holdings. So which ETFs have significant exposure to AAPL?
The table below shows the ETFs that have the highest exposure to AAPL (as a % of net assets). The first 5 names on the list are to be expected, since they are all ‘technology’ ETFs. There are however other ETFs that… see full post
Vanguard’s decision in October to switch its underlying index benchmarks from MSCI to the CRSP indices (for US exposure) and FTSE indices (for international) was a very significant one for the wealth management industry. The assets in Vanguard mutual funds and ETFs tracking these indices are in the range of $500Bn, impacting a large number of investors.
We decided to take a deeper dive starting with the US benchmark switch, to see if the new indices have a very different risk profile. If they do, it would imply that Vanguard has effectively changed the type of exposure and therefore the… see full post
As investors continue to adopt ETFs, it is important for them to understand the mechanics of the underlying indices. Analyzing historical constituent changes is one way to get a better understanding of an index and the implications for turnover in the ETF.
The table below shows the additions and deletions to the S&P 500 Index (and therefore the ETFs that track it like SPY, IVV & VOO) over the calendar year 2011 and 2012 (YTD). As we can see, in most cases the stock added may not be from the same sector as the stock dropped. 2/3rds of the deleted… see full post
Alliance Bernstein recently put out a widely publicized report asking whether ETF growth will hit a wall. It’s a well-researched report that addresses an important issue (a summary is here). However I think it under-estimates the ongoing structural change in the asset management industry, in the following ways:
1. The A-B analysis assumes that ETF asset growth to date has been synonymous with growth in ‘passive’ index investing. As I’ve argued before, looking at the fund industry through the traditional index/active prism misses a structural change in the industry. The table below shows asset share for active, index funds and… see full post
The most compelling feature of ETFs is their low cost, especially for previously hard to access segments. So which are the ETFs with the lowest net expense ratios in different categories? We’ve compiled a simple list of the 3 funds with the lowest net expense ratio in 5 popular market segments. Some segments are broad (US large cap equities) while others are very specific (China Bonds).
This is just a sample list for 5 segments. Investors may be interested in finding funds in a whole variety of different segments by asset class, sector, investment strategy, weighting methodology etc…. see full post
Many investors still think of Exchange Traded Funds (ETFs) as passive vehicles since most of these funds track an underlying index. The reality is that ETFs have blurred the traditional boundaries between active and passive management.
In the chart below, we show the median number of holdings in equity ETFs based on the year they were launched. It highlights the natural evolution of equity ETFs from broad based funds to narrower vehicles providing very targeted exposure to sectors, geographies or strategies.
The very first ETFs from State Street (SPDR) tracked broad benchmarks like the S&P 500 and S&P MidCap 400. Similarly,… see full post
Last week Bloomberg announced that it is making its Application Programming Interface (APIs) freely available to the public. It’s another interesting development in their Open Data initiative. However, in our opinion, the more significant move was Bloomberg’s earlier decision to make its Global ID freely available.
Why should this matter to those of us interested in ETF data? Primarily because it should lower the cost of creating ETF data sets and the applications that sit on top of them. One of the challenges of building high quality, consistent ETF data sets is the lack of free, widely adopted securities identifiers…. see full post
Volatility is emerging as an important asset class with retail investors. This is because volatility can offer diversification benefits to investors due to its negative correlation with the S&P 500. Volatility (as measured by the VIX Index) and the S&P 500 have a -76% correlation based on the past 5 years of historical index data.
Also, there are now products available that give retail investors access to this asset class for the first time. As of January 2012, there were 4 ETFs and 25 ETNs in this product category. Since one cannot easily access the ‘spot’ market for volatility, these… see full post
Posted in VIX
Tagged VIX, VIXM, VIXY, Volatility
As the universe of Exchange Traded Funds (ETFs) continues to expand, having an effective way to find and compare these funds is becoming increasingly important. To do this well, fund data needs to be organized and presented in an intuitive and usable way. The two most prominent fund classification systems are those of Morningstar and Lipper. However both of these systems were primarily designed to evaluate the performance of active mutual funds, and don’t work well for ETFs.
At First Bridge we decided to relook at the first principles of organizing fund data. Here are some of the basic principles… see full post