COMPOSITE MACRO ETF WEEKLY ANALYTICS (2/27/2016)

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LAYOUT (Organized by Time Period): 

  1. Notable Trends and Observations

  2. Composite ETF Cumulative Returns Momentum Bar plot

  3. Composite ETF Cumulative Returns Line plot

  4. Composite ETF Risk-Adjusted Returns Scatter plot (Std vs Mean)

  5. Composite ETF Risk-Adjusted Return Correlations Heatmap (Clusterplot)

  6. Implied Cost of Capital Estimates

  7. Composite ETF Cumulative Return Tables

COMPOSITE ETF COMPONENTS:

Notable Observations and Trends:

  • Cumulative returns across a broad spectrum of composites remain weak evidenced by only Utilities and Treasuries showing gains over the last 252 days. 
  • Mid January appears to be a major turning point/trend change for the Precious Metals Miners composite. Looking at the last 126 days Best/Worst plot shows a sharp V bounce which has continued since. 
  • Investors positioning still looks defensive over the longer frames of 252, 126, 63 days as evidenced by the outperformance of the Precious Metals complex, Utilities, and Treasuries. 
  • The market overall still looks binary (risk-on/risk-off) as evidenced by the increase in inverse correlations across timeframes between risk assets (sectors, global, emerging equity) and defensive assets (precious metals, bonds, utilities, telecom) . 

LAST 252 TRADING DAYS

LAST 126 TRADING DAYS

LAST 63 TRADING DAYS

YEAR-TO-DATE LAST 41 TRADING DAYS

LAST 21 TRADING DAYS

LAST 10 TRADING DAYS

Implied Cost of Capital Estimates:

To learn more about the Implied Cost of Capital see here.

CATEGORY AVERAGE ICC ESTIMATES

ALL ETF ICC ESTIMATES BY CATEGORY

Cumulative Return Tables:

USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (2/20/16)

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FOR A DEEPER DIVE INTO ETF PERFORMANCE AND RELATIVE VALUE SUBSCRIBE TO THE ETF INTERNAL ANALYTICS PACKAGE HERE

 

To see the origin of this series click here

In the paper that inspired this series ("What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns?") the authors' research shows that their calculation of the Option Volatility Smirk is predictive of equity returns up to 4 weeks. Therefore, each week, I will calculate the Long/Short legs of a portfolio constructed by following their criteria as closely as possible. However this study will focus on ETF's as opposed to single name equities. I will then track the results of the Long/Short portfolio, in equity returns, cumulatively for 4 weeks before rotating out of that portfolio. The ETF's are selected from the following groups:

PORTFOLIO FOUR

Longs: XRT,  XLY,  XLP,  XHB,  GDXJ,  IYT,  XME,  MDY

Shorts: EPI, XLU, HEDJ, JNK, EWQ, VEU, XLI

PORTFOLIO FIVE

Longs: VO, GDX, XHB, XLB, HACK, XLY, XLP, XLU

Shorts: ACWI, VWO, IYJ, VB, VPU, ECH, VGK, IWB

PORTFOLIO SIX:

LONGS: IJR, ACWI, IJH, KBE, VWO, XLY, XLU, IYG

SHORTS: EWU, XHB, VXUS, VPU, IXC, EWW, VGK, EPI

PORTFOLIO SEVEN:

LONGS: RTH, FDN, IDU, EPI, HACK, XLU, IYG, HEDJ

SHORTS: EWA, MOO, VOX, VGK, EWH, EWW, IAU, IJR

CUMULATIVE GROSS PRICE RETURN (ALL PORTFOLIOS)

PORTFOLIO EIGHT:

LONGS:  IYG, XLP, EWW, EPI, MDY, XLU, IYR, IAU

SHORTS: HEDJ, INDA, IWB, VXUS, EWS, EZU, EWU, LQD

COMPOSITE MACRO ETF WEEKLY ANALYTICS (2/20/2016)

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FOR A DEEPER DIVE INTO ETF PERFORMANCE AND RELATIVE VALUE SUBSCRIBE TO THE ETF INTERNAL ANALYTICS PACKAGE HERE

LAYOUT (Organized by Time Period): 

  1. Composite ETF Cumulative Returns Momentum Bar plot

  2. Composite ETF Cumulative Returns Line plot

  3. Composite ETF Risk-Adjusted Returns Scatter plot (Std vs Mean)

  4. Composite ETF Risk-Adjusted Return Correlations Heatmap (Clusterplot)

  5. Implied Cost of Capital Estimates

  6. Composite ETF Cumulative Return Tables

  7. Notable Trends and Observations

COMPOSITE ETF COMPONENTS:

LAST 252 TRADING DAYS

LAST 126 TRADING DAYS

LAST 63 TRADING DAYS

Year-to-date LAST 36 TRADING DAYS

LAST 21 TRADING DAYS

LAST 10 TRADING DAYS

Implied Cost of Capital Estimates:

To learn more about the Implied Cost of Capital see here.

CATEGORY AVERAGE ICC ESTIMATES

ALL ETF ICC ESTIMATES BY CATEGORY

Cumulative Return Tables:

Notable Observations and Trends:

  • Unfortunately not much has changed this week. Many of the themes I identified last week appear to be ongoing.
  • Defensive positioning is still prevalent as Precious Metals Miners and Precious Metals have continued to outperform.  
  • The relative strength of the Emerging/Frontier and Consumer Discretionary composites over the last 21 and 10 days respectively is somewhat interesting. This gives the appearance of "Risk-On" but the other evidence implies investors should tread carefully.
  • My current working theory is that T-Bonds provide a safe yield for global investors given the increasing popularity of NIRP. The corollary to that thesis is that the Precious Metals complex acts like a put on runaway Central Bank policy. It is likely that Precious Metals will continue to show relative strength until NIRP is removed from the Federal Reserve's policy discussion.

USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (2/13/16)

/

FOR A DEEPER DIVE INTO ETF PERFORMANCE AND RELATIVE VALUE SUBSCRIBE TO THE ETF INTERNAL ANALYTICS PACKAGE HERE

 

To see the origin of this series click here

In the paper that inspired this series ("What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns?") the authors' research shows that their calculation of the Option Volatility Smirk is predictive of equity returns up to 4 weeks. Therefore, each week, I will calculate the Long/Short legs of a portfolio constructed by following their criteria as closely as possible. However this study will focus on ETF's as opposed to single name equities. I will then track the results of the Long/Short portfolio, in equity returns, cumulatively for 4 weeks before rotating out of that portfolio. The ETF's are selected from the following groups:

PORTFOLIO THREE

Longs: VWO, KRE, XLU, EEM, HEDJ

Shorts: EWW, HACK, JNK, XLP, IYR

PORTFOLIO FOUR

Longs: XRT,  XLY,  XLP,  XHB,  GDXJ,  IYT,  XME,  MDY

Shorts: EPI, XLU, HEDJ, JNK, EWQ, VEU, XLI

PORTFOLIO FIVE

Longs: VO, GDX, XHB, XLB, HACK, XLY, XLP, XLU

Shorts: ACWI, VWO, IYJ, VB, VPU, ECH, VGK, IWB

PORTFOLIO SIX:

LONGS: IJR, ACWI, IJH, KBE, VWO, XLY, XLU, IYG

SHORTS: EWU, XHB, VXUS, VPU, IXC, EWW, VGK, EPI

CUMULATIVE GROSS PRICE RETURN (ALL PORTFOLIOS)

PORTFOLIO SEVEN:

LONGS: RTH, FDN, IDU, EPI, HACK, XLU, IYG, HEDJ

SHORTS: EWA, MOO, VOX, VGK, EWH, EWW, IAU, IJR

COMPOSITE MACRO ETF WEEKLY ANALYTICS (2/13/2016)

/

FOR A DEEPER DIVE INTO ETF PERFORMANCE AND RELATIVE VALUE SUBSCRIBE TO THE ETF INTERNAL ANALYTICS PACKAGE HERE

LAYOUT (Organized by Time Period): 

  1. Composite ETF Cumulative Returns Momentum Bar plot

  2. Composite ETF Cumulative Returns Line plot

  3. Composite ETF Risk-Adjusted Returns Scatter plot (Std vs Mean)

  4. Composite ETF Risk-Adjusted Return Correlations Heatmap (Clusterplot)

  5. Implied Cost of Capital Estimates

  6. Composite ETF Cumulative Return Tables

  7. Notable Trends and Observations

COMPOSITE ETF COMPONENTS:

LAST 252 TRADING DAYS

LAST 126 TRADING DAYS

LAST 63 TRADING DAYS

year-to-date LAST 31 TRADING DAYS

LAST 21 TRADING DAYS

LAST 10 TRADING DAYS

Implied Cost of Capital Estimates:

To learn more about the Implied Cost of Capital see here.

CATEGORY AVERAGE ICC ESTIMATES

ALL ETF ICC ESTIMATES BY CATEGORY

Cumulative Return Tables:

Notable Observations and Trends:

  • Investors appear to be increasing their defensive positioning in the market as evidenced by the continued relative strength in the Precious Metals/Precious Metals Miners and Treasury Bond composites.
  • Investors appear to be liquidating previous high performing asset classes as evidenced by Healthcare being among the bottom 3 performers off all composites across 5/6 timeframes beginning over the last 126 days. 
    • This is also supported by further deterioration in the relative performance of the Technology composite, which appears as a bottom 3 performer year-to-date.
  • Correlations still appear relatively binary. However, a notable change is occurring in the correlation of Oil and Gas with the rest of the Sector based composites. It appears to be weakening year-to-date as compared to the last 126/252 trading days. 
  • The Treasury bond composite is seeing a notable increase in its negative correlation with the rest of the market as well. I look for this trend to continue as long as the global Negative-Interest Rate Policy trend continues. The US offers relatively high yield when compared to negative rates!

FOR A DEEPER DIVE INTO ETF PERFORMANCE AND RELATIVE VALUE SUBSCRIBE TO THE ETF INTERNAL ANALYTICS PACKAGE HERE