Chart of the Week: Investment Strategy ETFs

With interest growing in actively managed ETFs, there is another category of ETFs (and ETNs) out there which I believe has been unfairly overlooked by most investors. I do not have a name for these ETFs, but rather than represent asset classes, sectors, geographies and other typical ETF constructs, they seek to replicate specific investment strategies. Until someone tags them with a better name, I am going to call them strategy-in-a-box ETFs.

Depending upon how you define the strategy-in-a-box concept, you can find various ETFs that may or may not conform to that definition, but six that clearly fit the profile, have attracted some investor interest and that I try to monitor are:

• Elements S&P CTI ETN (LSC) – a long-short commodity technical momentum ETF
• Claymore/Sabrient Insider ETF (NFO) – targets companies where there are favorable corporate insider buying trends and recent earnings estimate increases by Wall Street analysts
• PowerShares DWA Technical Leaders (PDP) – focuses on companies exhibiting strong relative strength as measured by Dorsey Wright & Associates Technical Leaders Index
• PowerShares Value Line Industry Rotation (PYH) – is based on the Value Line Industry Rotation Index, which is derived from Value Line’s measure of stock timeliness and industry timeliness
• PowerShares Value Line Timeliness Select (PIV) – unlike the ETF above, utilizes three core Value Line ranking systems that incorporate timeliness, technical ranking and safety
• Claymore/Zacks Country Rotation (CRO) – which attempts to track the Zacks Country Rotation Index

What can you do with this motley group of ETFs? For starters, since all have been around for at least 15 months (all but LSC for more than two years), you can see how some of these strategies have worked in real-time bull and bear market conditions.

For instance, if you just happened to get bullish on March 9th, which of the above ETFs would have provided the best returns? The chart of the week below shows that the Claymore/Sabrient Insider ETF has led the pack, more than doubling over the course of the past seven plus months. The second best performer has been CRO, the Claymore/Zachs Country Rotation ETF. The PowerShares DWA Technical Leaders has returned about the same as the SPX during the bull market. Interestingly, the Elements S&P CTI ETN has actually lost money during the strong bull market in stocks.

I will have more to say about these ETFs and about their actively managed ETF cousins going forward. In the meantime, feel free to suggest a better name than strategy-in-a-box.

[source: StockCharts]

Comments

[Ron Rowland:]

You are correct, that "strategy" is probably the best one-word description for the examples you have identified. I have always called/classified these as "styles". I tend to look at styles as much more than the Morningstar 9-square style box include what you are calling strategies.

CSFB used to try to place styles/strategies/appr... into 11 "style categories" such as Traditional Value, Earnings Momentum, Price Volatility, etc. It can be debated as to whether these are styles or factors used to define a style.

Oct 19 05:45 PM

[absolute re...:]

Bill,

I enjoyed the article. I own NFO and added another ETF yesterday. I am interested in this L/S ETF, LSC. Do you know if it is actively managed? It seems to fit with my absolute return "strategy". I noticed that the top guy for Sabrient on the NFO ETF is on Seeking Alpha, David Brown.

Look forward to more articles from you. Thanks for your help.

Oct 20 01:01 PM

[absolute re...:]

Bill,

LSC has sure been a poor performer after analyzing it further so will probably stay away from it for the time being. I am curious about something you mentioned and that is that these are overlooked. NFO is up over 100% and Zach's over 60%. It seems that investors would eventually find these and pile into them. Am I missing something? They are both Claymore ETF's, does that have anything to do with it?

Oct 20 02:43 PM