Performance Of My ETF Picks From One Year Ago

I publish a monthly newsletter which includes my Top 10 ETF picks, among other things. How well or how poorly have these picks performed in the 12 months following their publication to subscribers? Let's look at the numbers.

The Summary Table

Every month, I publish a new list of ETF picks. I have a screening methodology that includes valuation metrics, price and volume momentum, and sensitivity to where we are in the business cycle. Each of my Top 10 ETF lists has performed well over the following 12 months.

Below is the summary table showing the 12-month returns for each list and the benchmark I use for comparison. I chose the Vanguard Total World Stock ETF (VT) as the benchmark because it is the most widely diversified global ETF I can find.

The last row in the summary table below shows the Alpha, or the difference between the performance of my ETFs and the performance of the benchmark.

As you can see, my monthly ETF picks have captured Alpha every time. After a slow start in January and February 2017, the amount of Alpha captured started to become meaningful. As time passes and more of my monthly picks reach the 12-month mark, subscriber interest continues to build.

The fact that my ETF lists have not (so far) produced negative Alpha is also notable.

Next, we look at the details of each monthly list and how the individual ETFs performed. I'll start with the most recent list from June 2017 and work backwards in time from there.

The Monthly Tables

My list from last April did very well, with no losers and six Alpha producers. Next up is the list from March 2017.

This list had two losers, both in the commodities space. The other eight were winners and produced strong Alpha for the 12 months.

Next, we look at the February 2017 list.

This list managed to capture Alpha, but not very much. Still, Alpha is Alpha. Only one ETF lost value, and again, it was commodity-based. The last list is from January 2017, which was a real squeaker in terms of Alpha.

A tiny bit of Alpha for my first swing at this game is good enough for me. Once again, commodities were a big drag on performance. Will I ever learn? Yes, I think I will.

Comments

[Omar Hobeika]

How do get the monthly updates for the ETFs? I am already signed up for the value and high quality.

[Erik Conley]

Omar, if you email me at [e-mail] I'll send you the details.

[JES]

Eric how do you recommend that your subscribers use this. Hold all the recommendations for one year even if on drops from the list the following month and add any new ones?

[Erik Conley]

I tried several times to understand your statement/question but I'm at a loss. Can you clarify?

[Erik Conley]

The holding period for each iteration of the strategy is 4 weeks. Some names will carry over, but most do not.

Is that what you wanted to know?

[Ultrabase]

Erik, you made several references in this article to "capturing Alpha," but how do you calculate or determine the amount of alpha? Just because an investment has increased in value does not prove it has alpha. In a bull market, a high-beta, zero- or negative-alpha investment will also increase faster than the market.

For example, you had BBC in January 2017. The Morningstar website shows the 3-year alpha of BBC is actually negative at -17.96, but the beta is 2.07. How would we know whether your picks are capturing alpha, or just high beta?

[Erik Conley]

I am using a specific benchmark - VT - to calculate Alpha. I do this to keep things as simple as possible. I leave it up to subscribers to do their own due diligence, as you have, and make a decision about whether or not to add one or more of my picks to their portfolio.