XTF Research App: Delivering Micro Trends to Your Desktop

by: SA Editors

This article is part of a regular series in which we interview our App Providers - the folks that develop the amazing stock-market Apps on Seeking Alpha's new App Platform.

Please use the comment stream below to share your own experiences with the featured App. And feel free to suggest to the developers any improvements or changes you'd like to see (or write a review!).

This week, we interview Mel Herman, President and CEO of Marco Polo XTF - whose investing app, ETF Research App, "provides comprehensive ETF ratings, research, and investment decision support tools to investors worldwide."

This week only: XTF and our App Store crew are teaming up to offer new subscribers to ETF Research App a 50% discount for the next three months. Use coupon code xtf50off when signing up.

And now, the interview:

Opening XTF's "ETF Research App," I'm greeted with a simple, Google-like search box. I type in XLB... Talk about what happens next.

As you type the letters, the ETF Display box appears and shows you a list of securities that match what you've typed. Below you can see what it shows after you type all three letters of XLB. There are two potential matches, both materials sector ETFs; XLB itself, and XLBS, which is a PowerShares S&P SmallCap Materials ETF. You can choose the one you want and click the search button, which will take you to its ETF Ratings page. (click on images to enlarge)


Note that you didn't have to type an ETF in this box. You can see below what happens when 'Silver' is typed instead.

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image2_thumb1.pngClick to enlarge

XLB's overall rating is 9.5 - apparently quite a strong grade. What are the key aspects that make XLB so strong? What prevents it from attaining a perfect 10?

Using the image below, we can use the percentile rankings (highlighted in yellow) to easily determine how each value compares relative to other ETFs within the same asset class. This ETF has above-average scores, leading to a 9.5 rating. But the two values circled in red help us to understand why it is not a perfect 10. In particular, the Concentration Risk of 19.7% is ranked only 15.5% - a well below average score. From this we can correctly assume that this ETF has one or more components that make up a very large percentage of the overall ETF, which means it is less well-diversified than most. In fact, clicking on the Fund Holdings tab we can see that FCX alone is 12.3% of the fund - and the top 5 components total nearly 50% of the fund. The Efficiency score of .24 is ranked 64.4%, which is slightly above average, but leads us to the conclusion that 35% of ETFs did a better job of outperforming (before expenses) the underlying index which they are intended to track. This is important, because when an ETF outperforms its index that means it has returned additional alpha to the holder of the fund, making it even less expensive than the expense ratio alone would indicate.

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image3_thumb1.pngClick to enlarge

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image4_thumb1.pngClick to enlarge

In comparing XLB to its peers (RTM, VAW, IYM, XME), I find it receives the strongest rating. How are peers chosen? Are the peer lists always exhaustive, or are you forced at times to reduce them to a manageable size?

The Similar ETFs algorithm allows us to make an educated decision as to which is the best ETF to purchase according to our investment objectives. With over 1,000 ETFs, and new ones being added daily, many of them have similar objectives that overlap and some in fact have the exact same objective. When these ETFs are compared against each other, there are often subtle but important differences in structure, such as costs (implicit and explicit), tracking, etc. Used in combination with our Ratings, the Similar ETFs algorithm allows you to easily compare and make an effective decision. We categorize every ETF according to its investment objective as stated in the prospectus. Then the objectives are hierarchically organized with major objectives such as asset class, leverage, and investment philosophy given the highest weight, followed by correlation of 30 day returns and overlap of the NAV as determined by the Fund Holdings. At most, we will return the closest 5 peers for every ETF, but may return none at all if an ETF is truly unique. And many are.

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image5_thumb1.pngClick to enlarge

On the Marketplace tab, I'm given a fascinating overview of ETF industry stats. Surprisingly, although ETFs are up a net 16.3% from a year ago, average daily volume is up just 2.1%, while net assets YTD are up 21%. How do you interpret these numbers?

Our mission at XTF is to provide complete transparency and insight into the trends that are occurring within the ETF industry overall, within all geographies, asset classes, sectors and down to the individual ETF level. Which trends are most important can change depending on the time of year and due to macroeconomic forces as well as market fundamentals and consumer sentiment. Clearly the ETF industry is growing rapidly in terms of both assets and trading volume. Some of this is at the expense of mutual funds, but much of it is due to the growing popularity of ETFs because they allow us to invest in areas that were previously inaccessible to the average retail investor. We fully expect this growth to continue for many years.

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image6_thumb1.pngClick to enlarge

I love the ability to track new ETFs as they go live. How frequently does your New ETFs dashboard refresh itself? Is there any way to use XTF's app to track yet-to-be-released ETFs?

We update the entire site on a daily basis. New ETFs will be listed on our site on the day they begin trading, but not sooner. We tried tracking ETFs via the SEC registration, but there are too many external variables that can prevent an ETF from being listed on the expected date or in some cases at all.

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image7_thumb1.pngClick to enlarge

My favorite tab is the research tab, an ETF screener which allows me to find ETFs using any number of criteria. For example, I was easily able to locate three Australia ETFs; two equity ETFs (EWA and KROO), and one currency ETF (NYSEARCA:FXA). Let's say I'm looking for dividend-stock ETFs, or muni-bond ETFs - how would I find those?

The XTF ETF Explorer is the command center for anyone looking to research Exchange Traded Products. We have been continuously improving the functionality of this tool for several years, and we believe there is no other tool in the industry that is as powerful and easy to use at the same time. You can certainly find all muni-bond ETFs in a few seconds by navigating to objective: Asset Class\ Fixed Income\ Debt Issuer\ Government Debt\ Municipal Debt. There are currently 25 ETFs that are in this category. If you are looking for ETFs that pay dividends you can click on performance and sort all ETFs by Annual Yield. If you are looking for ETFs that choose constituents based on their fundamentals you can navigate to objective: Index Composition\ Fundamental\ Dividend Yield-Weighted. We have a lot more planned for this tool so stay tuned.

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image8_thumb1.pngClick to enlarge

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image9_thumb1.pngClick to enlarge

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image10_thumb1.pngClick to enlarge

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image11_thumb1.pngClick to enlarge

The ETF Insider tab allows me to locate all the ETFs that hold a given stock, and even tell me how much of the stock's free float is held in ETFs. For example, AAON is held by 49 ETFs, and they hold 6.5% of its free float. What next - how can I use this information to make investment decisions?

The XTF ETF Insider is an excellent tool for end of year tax strategy as well as diversification among sector and asset allocation models. It allows you to quickly determine how to retain a specific percentage of exposure to any given individual security, while determining what other ETFs are available. Using this knowledge allows you to shift your portfolio positions in order to capture capital gains or losses while still retaining exposure to a specific security, sector or industry. It also allows you to determine how to best diversify your risk across a specific asset class, sector or industry while maintaining a specific level of exposure to a specific security. Used in combination with our Ratings and transparency into the Fund Holdings of each ETF, you can make very important investment related decisions that would be otherwise very difficult to determine.

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image12_thumb1.pngClick to enlarge

I'll let you folks explain the ETF heatmaps...

The XTF Thematic Heatmaps allow you to visually track the performance across every region, country, asset class, sector and industry in the world. They also allow you to figure out exactly how to gain exposure to any specific combination of geography/sector, and determine which is the most appropriate ETF or security which will give you that exposure. The main idea is to allow users to invest in the same way we think about the world and follow trends. Instead of researching and then looking for ETFs to invest in - you can use the tool to test your ideas thematically.

For example, say you just finished reading a Seeking Alpha article about the Chinese automobile industry, and believe that this is an area that could see double-digit growth over the next few years. But how do you invest in it, and is the trend already happening? Having no additional knowledge, but using our Heatmaps, you can answer both questions in a few seconds. Using the Heatmaps, you can visually locate China on the map, and then find the performance of the Consumer, Cyclical sector, and finally the Automobile Manufacturing Industry within China. We can see using the charts below the one-month performance of China relative to the world is -2.9%. The one-year performance of the Consumer, Cyclical sector in China is -7.8%. And the one-day performance of the Automobile Manufacturing industry is +0.31%. There are 53 ETFs that can give you exposure to this industry, and the current assets are $533M. This is just scratching the surface of what our Thematic Tools provide, but it should give you a good general understanding of the capabilities.

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image13_thumb1.pngClick to enlarge

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image14_thumb1.pngClick to enlarge

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image15_thumb1.pngClick to enlarge

Give us a specific example when using XTF's ETF app helped you - or a user - make a better investment decision, or hold back on a poor idea.

This is a great question because when it comes right down to it, whether you make more money or lose less money as a result of your research is the only thing that truly matters.

We believe that the best gauge of a research tool's effectiveness is whether your users choose to use it every day because they find it effective and value its utility above everything else. We had one such user who saw potential in natural gas, and wanted to invest using an ETF. This person took a position in UNG before understanding how well this ETF did its job of tracking the Natural Gas index. Luckily, he found our app on Seeking Alpha, and carefully evaluated using all the available research and structural integrity metrics, only to be surprised that this fund was doing a very poor job overall of doing what it was intended to do. UNG uses futures to track the commodity, and does not do a very good job of tracking the Natural Gas index. They dumped the positions, and not a minute too soon. While they were correct, and natural gas went up in price, the ETF actually lost money over the same time frame! This emphasizes the importance of understanding what you are buying no matter how good an investor you are. Unfortunately at this time there is only one ETF that allows you to make this bet; using our app, the user found he could invest in a natural gas ETF by buying companies instead of the commodity. He purchased FCG, which turned out to be a much better investment.

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image16_thumb1.pngClick to enlarge

https://staticseekingalpha.a.ssl.fastly.net/uploads/2010/12/2/saupload_image17_thumb1.pngClick to enlarge

So what's next for XTF?

In terms of our long-range goals, XTF is well under way to implementing and delivering the investment tools necessary to change the way you invest. Our focus has always been to leverage ETFs' transparency to deliver useful and easy to use tools - effective information architecture delivered in a visually intuitive framework. Our Ratings, Comparison Tools and Thematic Heatmaps form the framework to deliver the next generation of derived analytics that will allow us to deliver micro trends right to your desktop. Using this information, you can make educated predictive analyses with the precise ability to invest in areas that are interesting to you. You will be able to create portfolios thematically and benchmark them against your existing positions; test your hypotheses and share and compare them against other users' ideas, with the best ideas rising to the surface. We would love to hear your ideas and opinions, and we listen carefully - so don't be surprised if we implement your suggestions. Feel free to email us at support@xtf.com.

Thanks Mel!

Have any thoughts, suggestions, or comments for Mel and his team? Tell them, and other SA readers, what you think in the comment stream.