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Joseph P. Porter
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I am a retired college faculty in Philosophy, with specializations in Ethics, Socio-political Theory and Rational Choice/Decision Theory. My teaching focus was on Business Ethics, Medical Ethics and Logic. After retirement I freelanced as a Grant Writer/Fund Raising Consultant. I have taught at... More
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  • Evaluating ETFs

    I have been looking for meaningful ways to construct data about ETFs. For the past two years (almost) I have focused on ETFs, and have found it frustrating when looking at available data to try to understand why a given datum should matter, especially when it seems to be either trivial or unrelated to the nature of the ETF; sometimes, the data just seems irrelevant.

    [NOTE: in my article "Ignore ETF Expense Ratios? Maybe", I argue that once an ETF provides actual expense data, the ER is functionally meaningless.]

    I am beginning a project that will involve examining the large-cap ETFs out there (currently, about 121), a project that will no doubt take a long time, and to make it work I need data that makes sense when comparing several ETFs - data that speaks not to the nature of the ETF's holdings, but to the functionality of the ETFs themselves.

    How well is an ETF actually functioning as an ETF?

    Performance is always a reasonable statistic - particularly since the value of an ETF is tied just as much to the value of it's holdings as it is to its market activity.

    In the article mentioned above, I developed the notion of an "expense margin," which functions just like the operating margin for a company - it measures what is left of the fund's income after expenses have been subtracted. I determine the expense margin by subtracting expenses from the fund's gross investment income, then divide the resulting net investment income by the gross income.

    EM = (gross income - expenses) / gross income

    The higher the expense margin, the more income remains after expenses - meaning higher dividends. Since the EM is independent of the actual expenses paid, or the actual income, it can be compared fund to fund as a means of determining whether a fund is more or less efficient than another.

    A "new" datum I am using is "return on NAV," or "RoNAV." To get this figure I divide the net income by the fund's NAV. This is a measure of how much income is realized by the fund's investment.

    RoNAV = net income / NAV

    The greater the RoNAV, the better. This strikes me as being one particularly effective way of comparing funds that have similar styles - if an investor is interested in a large-cap fund, the fund that has the better RoNAV would be the fund that is realizing the most income - getting the bigger "bang for the buck."

    Another "new" datum takes advantage of the expense ratio; if investors are going to pay attention to this figure, it makes sense to see just how "real" the ER is. Thus, I have started using what I am calling the "expense efficiency rating," or EER. This rating compares the actual expenses paid by a fund to the expenses the fund expects to pay (reflected by the ER). I determine the rating by dividing the actual expenses by the expected expenses (which are determined by multiplying NAV by ER).

    EER = actual expenses / (NAV * expense ratio)

    An EER < 1 is desirable, as it means the fund is paying out lower expenses than anticipated; an EER > 1 may indicate a fund's expenses were underestimated, or that the fund has encountered unexpected expenses.

    These data will be incorporated into the fund description tables I include with my articles. If - and when - I come up with more "innovative" data structures, I will put them up on the blog before incorporating them into the published tables.

    Nov 24 5:34 PM | Link | Comment!
  • Dogging The Market: Week 52 - Dodging My Duty

    The end of the year is just a few days away (four, as I write this), and with only three-and-a-half days trading this week, and one-and-a-half next week (before the New Year), I've opted to postpone this week's report and save it for next week - hopefully as an article.

    Some things to consider in the interim:

    1. It actually looks like the Dogs of the Dow will beat the Dow PIC portfolio. Two or three hundred basic points is enough of a difference to matter. It remains to be seen, however, whether the Dogs will beat the Dow itself.
    2. the PIC portfolio will beat the Dogs the S&P 500, possibly by the same margin as is involved in the Dow competition. The PIC should also beat the S&P itself, but it might be close.
    3. It does look like the S&P PIC portfolio will beat the Dogs of the Dow. This will be a close race, but given the past couple of weeks, the S&P has done somewhat better than the Dow, so I give the edge to the PICs to beat the Dogs.
    4. What really disappoints me is the performance of ETFs that track the two indexes: they are all beating - or very close to beating - the Dogs and the PICs of both indexes.

    To sum up, the PICs have not done badly, and neither have the Dogs. There won't be quite the superior performance of the Dogs of the Dow as history would have it, which is strange, given that this has been a very nicely performing year, all told.

    What happens next? I am not going to follow the Dogs next year - I'll leave that up to my colleagues, such as Miz Magic DiviDogs.

    I will be expanding how I cover the PICs, however. As a teaser, let me say that I set up a new PIC portfolio for both the Dow and the S&P, both starting on July 1. Since then, the S&P PICs have made a total return of more than 18%. PICs may not be a 12-month hold'em. I will be tracking a variety of alternatives to see if it is possible to pin down a cycle for refreshing the portfolios.

    Dec 27 4:29 PM | Link | 6 Comments
  • Dogging The Market : Week 51 - Ooops! My Bad

    I apologize for missing last week's entry - blame a sprained wrist, bruised thigh, and a hefty article for the oversight.

    While week 50 was fairly miserable last week was very nice. Once the Fed finally made up its collective mind to begin tapering the market took off.

    The Dow:

    (click to enlarge)

    It's beginning to look like the fat lady is about to sing. I don't see PIC picking up enough to catch, let alone pass, the Dogs. However, the Dogs are not doing that much better than the Dow.

    The S&P 500:

    (click to enlarge)

    So far, it looks like the Dogs have two two-baggers, while the PIC has an outside chance of picking up one of its own.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Dec 22 5:09 PM | Link | 7 Comments
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  • $CUR up $0.27 @1:20 - can't find any news for big jump (15%!) - anyone know what's going on?? Very smiley face about this.
    Sep 24, 2015
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    Mar 16, 2015
  • Ignore ETF Expense Ratios? Maybe
    Dec 18, 2014
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