iShares Dow Jones US Financial Svcs (IYG)

All Comments on IYG

  • commenter
    Jim Glazen
    Aug 18 05:32 PM
    Gold, Silver ETFs Lead the Way Lower; Financials Gain [view article]
    Stupid Goldbugs thought the credit bust would be the main event that powered gold to all-time highs. They didn't realize that Gold is in the same boat as everything else. Steel, copper, titanium, small-cap stocks, houses, classic cars....all in the same credit bubble boat.

    lmfao!!     Reply
  • commenter
    Long-Short
    Guy
    Jul 22 09:59 AM
    Financials, Homebuilders Drag On Market [view article]
    Homebuilders are not surprising; just look at the tone here:

    usmarket.seekingalpha....     Reply
  • commenter
    Beta Hog
    Mar 17 09:03 AM
    In Search of Low (or Negative) Correlation Between Asset Returns [view article]
    Geoff ... I am reasonably confident that your points concerning the utility of Monte Carlo for portfolio PLANNING purposes are valid ... and not here in question or doubt. But my previous query (which see above) was not about portfolio DESIGN (i.e the Strategic Asset Allocation, or the Benchmark posture for the portfolio) ... rather, the question was whether Monte Carlo is of any practical value in the "active" ongoing management of the portfolio after it's architecture has been decided ... in other words, is it useful for Tactical Asset Allocation once the SAA has been selected? Since it is self-evident that market activity alone WILL alter the alter the initial SAA with the passage of time, your comments on the TAA aspect of the matter would be appreciated. Reply
  • commenter
    Geoff
    Considine
    Mar 14 12:13 PM
    My Website
    In Search of Low (or Negative) Correlation Between Asset Returns [view article]
    Guys....while philosophical comments on what Monte Carlo may or may not achieve are interesting, you will find a number of postings on my site and here on SA that specifically validate the model approach. There are a variety of ways to validate these models as being better for planning than looking backwards and I cover a number of these. In my analysis--which my users can reproduce easily--I tend to get the result that you can improve forward-looking estimates of average portfolio return by a factor of two over looking backwards. While Monte Carlo may sound esoteric to you, it is a standard of practice in many professional portfolio management disciplines. Yes, there are bad MC models and they should be treated with skepticism, but they can be validated and I have numerous articles that demonstrate this. Reply
  • commenter
    Suna Reyent
    Mar 09 09:12 AM
    In Search of Low (or Negative) Correlation Between Asset Returns [view article]
    I'm sorry I can't claim much expertise or experience in Monte Carlo simulation. However I'm aware that it involves generating outcomes with a computer, which represent possible returns for the asset or portfolio. Of course they are generated using *assumptions* concerning distribution of returns, however the distribution doesn't have to be "standard normal distribution" or anything like that.

    For instance to determine possible returns for a bond portfolio, the analyst needs to define the set of interest rates, or some path, which is clearly influenced by the analyst's preconceptions about the functioning of the bond market as well as international liquidity flows or the Federal Reserve and things like that (which will probably mirror the recent past, hence my objection to "forward-looking data"). What you put into the model determines what you get out of it. Of course these are categorized as "model risk".

    That's all I know...     Reply
  • commenter
    Beta Hog
    Mar 09 07:03 AM
    In Search of Low (or Negative) Correlation Between Asset Returns [view article]
    I am not familiar enough with Monte Carlo analysis to be able to determine whether it has enough practical value to warrant use as an ongoing investment tool. Based on postings by Geoff Considine, I suspect it may have value in portfolio design, as an initial step. I regard portfolio design (i.e. the 'strategic' posture, or SAA, that results from the investor's 'investment policy') as the single most important determinant of investment success. Once the SAA posture is decided (by whatever means) a 'tactical' dimension (or TAA) is required for the inevitable re-balancing that all portfolios require through time. If this 'tactical' element is ignored, the markets most certainly WILL adjust the balance by default). This is the critical deficiency of the so-called "passive" investment approach (apologies to John Bogle) which doesn't adequately deal with the matter since all markets function on a dynamic continuum and therefore require an "active" response. It would be interesting to see whether Monte Carlo has any useful elements at the TAA level. Have you done any work in this area? Or perhaps Mr. Considine could comment if he chances to read this ? Reply
  • commenter
    Suna Reyent
    Mar 09 04:01 AM
    In Search of Low (or Negative) Correlation Between Asset Returns [view article]
    I definitely agree. I think I overstated my case and there are instances where "forward-looking information" is a lot more applicable such as in calculating P/E ratios of companies. A trailing P/E ratio (and even 12-month forward P/E) would have been useless in calculating the value of Google when the stock was trading at $150, if I only looked at past information I wouldn't have bought it at that price, and wouldn't have decided to triple my position at around $170 (that I did because Wall Street was NOT covering it at the time.)

    Of course there are models that incorporate company growth and clearly stock market takes that into account as we see certain stocks that seem very expensive in terms of traditional valuation ratios but might not be that way.

    One of the conclusions I was trying to arrive at with that article was that it is possible to incorporate these so called "high risk" companies in a framework of a more diversified portfolio and clearly some of my "high-flying bets" in technology have failed (such as Sigmatel, my all-time embarrassment, and no it did NOT have a high P/E when I bought it and I did NOT increase my position as the stock fell, one of my trading rules), however if all these volatile stocks are incorporated in a portfolio that has enough oil, energy, materials and defensive consumer goods companies and such, you'll be able to absorb those losses and it will be a lot easier to carry a stock that requires an iron stomach.

    I have reservations about Monte Carlo analysis however if it’s done with the knowledge that the assumptions that go into the model may be wrong, or worse biased, I think it can be a very useful tool.

    But I’ve seen things in financial practice that do resemble pseudo-science rather than being a framework of hypothesis testing – we cannot “prove” something, that wouldn’t be science, theories are good to the extent that they are open to falsification.

    I’m very happy with all the reactions the article is getting. I should probably announce that I hold Google and Sigmatel at this moment, though Google has become a significantly larger part of my portfolio and Sigmatel is about to go to zero, literally. Probably time to rebalance. I’m saying these to make the point that a portfolio can be successful overall even if it includes a stock that is close to extinction.     Reply
  • commenter
    Beta Hog
    Mar 08 03:26 PM
    In Search of Low (or Negative) Correlation Between Asset Returns [view article]
    Your philosophical inference concerning "forward-looking information" is quite correct in that it is a pre-judgement of the anticipated future. And it will almost certainly prove to be "wrong" in some measure. And if it isn't wrong, that will be pure "luck" and nothing more. All 'forward-looking data' carries probalistic uncertainty of some amount that cannot be quantified in advance with a high degree of precision. Such forward inputs are based on an extension of the past in any event since they are not usually conceived in a vacuum. The strength of using only historical numbers is that they are not open to dispute. Statements that past returns can not be used to generate superior risk-adjusted future returns are not a proof of anything, but merely represent the 'opinion' of the person making the claim. Reply
  • commenter
    Suna Reyent
    Mar 08 04:29 AM
    In Search of Low (or Negative) Correlation Between Asset Returns [view article]
    Hi,
    Thank you for all comments. Firstly, I wanted to make the article accessible and intuitive rather than a scientific treatise, I'm aware that every serious econometrician or statistician who is involved with portfolio theory will strictly look at asset returns and not even bother with the actual prices. I wanted to put these up to show the logic behind that and show the differences between the two.
    Secondly, I'm aware that market concerns itself with forward-looking information, however the supposedly "forward-looking data" you put in your black box models are called "begging the question" in philosophy. That is, by the very action of putting in your "forward-looking data", you're already making predictions about the future so all these "black box" models are nothing more than glorified astrology to me. In other words, it is another version of Descartes' famous proof of the existence of God, but the assumptions he makes to come to that conclusion already presuppose what he's trying to prove, and hence the famous "Cartesian Circle" in philosophical terms.
    My article does not imply that future will resemble the past, I've already stated that in the end if you read the article thoroughly.
    I'm saying that a simple understanding of how correlation works will lead people to make more intelligent decisions about stock and etf ownership. And I'm showing historical data to support that idea, because I just don't think it is appropriate to show "forward-looking data" to support what I'm trying to prove, however I'm aware that's what the financial industry does.     Reply
  • commenter
    Geoff
    Considine
    Mar 07 02:03 PM
    My Website
    In Search of Low (or Negative) Correlation Between Asset Returns [view article]
    Sir:

    Your article mirrors many of the themes in my articles on Seeking Alpha. There are, however, a few important issues that I would like to raise. First, correlations between prices (as I understand your trend) are not a good basis for planning. There are a range of econometric / statistical reasons for this. Things with serial correlation in time (like prices) will often exhibit spurious (i.e. accidental, transient) correlations between them (like correlations between stock prices). Looking at returns removes this issue. The other important thing is that in order to plan, you need forward-looking estimates of portfolio risk and return. Your article seems to imply that investors can use historical data to get to a good asset allocation. They can't. Bernstein (in The Intelligent Asset allocator) deomonstrates the incredibly bad results you will end up with if you do asset allocation using a Mean-Variance Optimization and historical data. My point is that the problem is harder than you seem to suggest--you need a FORWARD view: you can't do asset allocation just b looking in the rearview.

    In other words, I agree 100% that correlations are an important input to portfolio planning. I also agree and have pointed out a number of times that foreign indices provide much less protection than people think because the correlations can be quite high (as you show).     Reply
  • commenter
    billb
    Mar 07 10:50 AM
    My Website
    In Search of Low (or Negative) Correlation Between Asset Returns [view article]
    Great and timely article. I've been giving this some study time over the last few months. It's taken me probably longer than it should've to come to the conclusion that your statement "Which brings us back to the basics of investing, that those seeking higher returns will have to bear higher risks" is just plain true. There are no shortcuts in the market since someone else is always on the other side of the trade.

    Something I'm studying next is going a little bit against conventional theory with regard to minimizing volatility and maximizing return. The basis of the idea is to find very volatile asset classes such as emerging markets, commodities and small/micro cap stocks. All of these will be ETFs to eliminate the fear of total loss. Based on my preliminary studies, while many of these asset classes over the last few years have been performing well (with positive correlation), some clearly outperform others in various timeframes. The increased volatility helps to better identify rebalancing points.

    For example, the beginning of 2006 was a bit rough for small cap stocks and the U.S. indices in general. Meanwhile, commodities were still charging ahead. The deviation reverted to mean as commodities flattened and stocks began running up around June. The deviation between these two asset classes was fairly clear and a rebalance would've worked wonderfully. I've found a few of these deviations over time in other asset classes. So here we have no big crash, but a great opportunity to rebalance. Choosing higher volatility is a way to hopefully get a larger deviation (prompting a rebalance) and better returns over time (ex: a portfolio of small caps will generally outperform the blue chips over time).

    With regard to when all assets crash, I've come to accept that this is just inevitable and really represents a buying opportunity across all asset classes. All asset classes bombed with the exception of bonds. If one was 50/50 (bonds, stocks, let's say), you would've dramatically underperformed and 50% of your portfolio would've still taken a hit. I don't see the benefit of being in "less risky" asset classes.

    I don't think this idea is going to help anyone's ulcer or someone who can't accept a big hit in the short term, but may be a better way to help the "buy low/sell high" side of the efficient portfolio theory.

    Thank you for the article.     Reply
  • commenter
    Suna Reyent
    Mar 07 10:26 AM
    In Search of Low (or Negative) Correlation Between Asset Returns [view article]
    Hi,
    The "Trend" is the index itself, or in the case of commodities, the actual futures price. I just had to differentiate betwen the index and its daily (or monthly) returns.     Reply
  • commenter
    ETF Wanderer
    Mar 07 09:56 AM
    My Website
    In Search of Low (or Negative) Correlation Between Asset Returns [view article]
    Quick question: how do you define "Trends" which you used in correlation between trends - is it YoY return or something similar ? Reply
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