ETF Wanderer_

Emerging Markets ETFs: Predictable and Consistent

Essentially, these days there are just "pure" asset classes - all things correlated to equities and all things correlated to bonds.

There is no such thing as emerging market as a different asset class. Even commodities, currency carry trades etc are correlated with equities these days. unless you were in bonds, there is nothing that could have saved you from yesterday's crash.

US market is just a relatively low vol version of an equity market. Just like if you pick up any index, it will have some low vol relative to the index and some high vol relative to the index; similarly on a world equity market, us & emerging markets differ on just the vols.

As far as risk-reward characteristics are concerned, emerging markets have had too high returns that they will compensate adequate for any risk, including yesterday's crash.

Comparing Financial Sector Index ETFs: Does Anything Make Them Special?

Roger,

The article you have written covers a very relevant & serious issue that is faced by many investors (including me). I think a few of them could add some value over a longer horizon say 1 year (and many like me are a bit longer term guys thanks to the lower US long term cap gains!).

One of solution that I have tried to do is (although far from perfect & with problems of its own) is to use the corresponding underlying indices to make the decision. The assumption is that the ETFs will track them more closely.

Between the FRUSF Index (underlying Index for PRFF) and IXM Index (underlying Index for XLF), the comparison is a bit easier to their longer historical data. They have a common history from 12/31/1999 onwards and some statistics for the period 12/31/1999 to 11/30/1999 based on data from Bloomberg are:

FRUSF (PRFF) IXM (XLF) Long FRUSF-Short IXM (1:1)
Returns (Avg Ann.) 12.1% 5.9% 5.5%
St Dev (Avg Ann.) 15.4% 16.9% 3.2%
Ret/St Dev 0.78 0.35 1.71
Max Drawdown -18.5% -30.0% -3.3%

So, it seems at first glance that PRFF could be better than XLF. Unfortunately, it seems like that the Alpha (or excess-returns) of PRFF over XLF, has been really coming down over time and on a rolling YoY basis, the excess returns are currently around only 0.40% annualized (not monthly!).

Given the annual expense rations of PRFF versus XLF, 0.70% - 0.24% = 0.54% > 0.40%, & with the gradual decrease of Alpha features of PRFF, one might be currently better off holding XLF than PRFF.



One big issue with many of the PowerShares/WisdomTree... etc ETFs is that the extensive history of their corresponding underlying Index data is not available with most data vendors. So I'm unable do any analysis on PFI and RYF though.


(p.s. BTW, I don't work for any of the ETF firms and neither hold any financial ETFs till now. )

5 New PowerShares ETFs

Roger,

Its about time that someone also offers ETFs on Hedge Fund Investible Indices ... any news on that front ?