COMPOSITE MACRO ETF WEEKLY ANALYTICS (4/02/2016)

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COMPOSITE MACRO ETF WEEKLY ANALYTICS (4/02/2016)

Notable Observations and Trends:

  • The Precious Metals Miners composite has exploded over the last 126 and 66 days gaining ~+33, ~+37% respectively. That nearly doubles the next best performer for L/126 days and is just over 2.5x the second best performer over L/66 days. 
  • Precious Metals + Miners finally took a breath over the last 21 days as they lost ~ -3% and ~-2% respectively. 
  • Healthcare looks interesting again. It has been the third worst performer L/252 days losing investors almost -20%. Looking at the Best/Worst line plot L/66 days, Healthcare returns appear to have formed a base. Performance is positive since mid February 2016. Healthcare was the top performer L/10 days gaining ~+5%. 
  • Telecom has notable potential tailwinds. On a momentum basis the Telecom composite has been a top 3 performer for the L/252, L/126, L/10 days. On a fundamental basis, the ICC's of IXP and VOX are both >7% putting them in the upper half of investor's expected returns, compared to all ETFs.
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Using ETF Internal Analytics to Identify Mean Reversion Opportunities (python)

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Using ETF Internal Analytics to Identify Mean Reversion Opportunities (python)

Since I started producing the following graphic for the ETF Internal Analytics product, I found the weekly return bin information compelling. I became curious about whether there was an opportunity to be exploited in the distribution patterns. I distilled all the questions I had into two: 

  1. Does the percentage of ETF component stocks at various return levels provide actionable information?
  2. Can a long-short market-neutral strategy be constructed by analyzing the relative return dispersion of each ETF's stock components?

To answer these questions I used a combination of tools/data sources including State Street's SPDR Holdings data, the Yahoo Finance API, and Python. 

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USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (3/29/16)

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USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (3/29/16)

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.

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COMPOSITE MACRO ETF WEEKLY ANALYTICS (3/19/2016)

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COMPOSITE MACRO ETF WEEKLY ANALYTICS (3/19/2016)

Notable Observations and Trends:

  • Last 252 days the only Composites with positive returns are the "defensive" sectors: Utilities, Consumer Staples, Telecom, Precious Metals, and Treasuries
  • Last 252 days all Composites have negative rolling risk adjusted returns as shown in the Scatterplot.
  • There are still concerns that Energy and Oil + Gas showing strong performance over the last 10 and 21 days is simply short covering and momentum traders. Fundamentally that question will be answered by tracking Oil inventories vs production. 
  • Are the AsiaPacific and Emerging/Frontier composites finally being repriced to the upside or are we simply in a "risk-on" environment where high beta is being purchased indiscriminately? This is something to pay attention to as the Implied Cost of Capital estimates show these two composites have the highest implied returns (most undervalued) over the next year. 
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USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (3/19/16)

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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 EIGHT:

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

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

PORTFOLIO NINE:

LONGS:  HACK, EWW, XLV, XLY, XLB, ECH, IVV, IYE, XLP

SHORTS: KRE, VO, XHB, VXUS, HEDJ, XRT, FEZ, BND

PORTFOLIO TEN:

LONGS: IYZ, HACK, MOO, HEDJ, XLY, TLT, IYT, FEZ, XLV

SHORTS: LIT, RWO, VO, IXC, ECH, RWX, BIL, EWI, KIE

PORTFOLIO ELEVEN:

LONGS: IYZ, GLD, TLT, EWL, SHY, FDN, ECH, RWR, IEF

SHORTS: VO, RWO, IXP, IYJ, FXG, FEZ, KIE, INDA, AAXJ

PORTFOLIO TWELVE:

LONGS: XHB, IBB, XLI, XLU, IYR, SIL, XLE, GLD, IEF

SHORTS: AAXJ, VWO, IXC, EWW, VIS, VDE, FXD, HEDJ, DGT

CUMULATIVE GROSS PRICE RETURN (ALL PORTFOLIOS)