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<< Return to Part 3

The title is a misnomer. The differences between the previous portfolio and the current one are so minor as to not warrant an update. The active performance of the 2 Sept portfolio, updated to 9 Sept. is shown in the following graph. The performance continues to be unexpectedly creditable given the market turmoil.


(Click to enlarge)

However, so as to not waste an opportunity, I revisited a previous analysis on China ADR stocks. If U.S. and EU economies are in stall mode, or worse, and if the EU is mired in a financial crisis, then how is the supposed “engine room” of world growth, China, faring.

I compared the SPY against the SPDR S&P China ETF (NYSEARCA:GXC) and the top 10 performing China ADR’s as per my risk/reward framework. The absolute returns are:


(Click to enlarge)

And the relative returns against the SPY are:


(Click to enlarge)

The stocks comprising the China ADR portfolio are:

SPRD

Spreadtrum Communication

Technology

EDU

New Oriental Education & Technology

Services

NTES

NetEase.com

Technology

ZNH

China Southern airlines

Services

CHU

China Unicom

Technology

SCR

Simcere Pharmaceuticals

Healthcare

JOBS

51 Job Inc

Services

BIDU

Baidu Inc

Technology

CHL

China Mobile

Technology

PWRD

Perfect World

Technology

Additionally, I also wanted to check the performance of Commodity/Treasury ETN’s against the SPY, given the interest that commodities have generated in the period. I compared a Commodity/Treasury portfolio against the SPY and China ADR portfolio.

The absolute returns are:


(Click to enlarge)

The active returns are:


(Click to enlarge)

The Commodity/Treasury portfolio is comprised of:

VXX

iPath S&P500 Short Term ETN

GLD

SPDR Gold Shares

TLO

SPDR Barclays Capital Treasury

SLV

iShares Silver Trust

VXZ

iPath S&P500 Mid Term ETN

CORN

Teucrium Corn

GDXJ

Market Vectors Junior Gold Miners

JJG

iPath DJ-UBS Grains ETN

FUE

Elements MLCX Biofuels ETN

SGG

iPath DJ-UBS Sugar ETN

OBSERVATION

One thing I have learned to dislike is the argument based on stylised facts. An example would be China is booming, invest in China. Or, we have to eat, invest in agriculture. The above analysis shows that deeper thought is required. It shows for instance:

  • An ETF based on a booming economy (GXC) has underperformed an ETF of an economy at stall speed (NYSEARCA:SPY).
  • A portfolio of top ranked China stocks operating in a positive economy, have achieved an active return of around 23% while a portfolio of U.S. stocks operating in an adverse economy has achieved an active return of 40%.
  • A portfolio of top performing commodity and treasury ETF’s, selected on the same basis has underperformed a significant number of U.S. stocks but has outperformed China stocks and the broad based indexes GXC and SPY.
  • When this market turmoil subsides, my gut feel is that superior stock picking in the U.S. market will still be the place to be.

Continue to Part 5 >>

Source: Evolving Portfolio (Number 4): U.S. Rules OK