In this paper we will explore the evolution of smart beta investing through the advent of academic factor investing and examine how the characteristics sought by the SBRQAM Index can potentially overweight and/or rotate through the most common factors contributing to competitive performance.
The Sabrient Multi-cap Inside/Analyst Quant-Weighted Index (SBRQAM), is an index that investors can obtain exposure to through the Direxion All Cap Insider Sentiment Shares ETF (ticker: KNOW). For the most recent quarter end performance of the Fund, please see the disclosure page.
“What we need is a no-load, minimum management-fee mutual fund that simply buys the hundreds of stocks making up the broad stock-market averages and does no trading from security to security in an attempt to catch the winners. Whenever below-average performance on the part of any mutual fund is noticed, fund spokesmen are quick to point out “You can’t buy the averages.” It’s time the public could. ….there is no greater service [the New York Stock Exchange] could provide than to sponsor such a fund and run it on a nonprofit basis…. Such a fund is much needed, and if the New York Stock Exchange (which, incidentally has considered such a fund) is unwilling to do it, I hope some other institution will.”
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Create Better ‘Barbells’ With Bond ETFs
Many investors expect the return streams from bond ETFs to behave like the direct purchase of a bond, essentially providing current income with the likely return of principle at a future date. Although the expansion of ETFs has provided investors access to bonds, and at a reasonable cost, the performance behavior of these ETFs are often very different from the direct purchase of individual bonds. This Commentary introduces the Risk Adjusted Excess Income Ratio and illustrates its effective use in creating an Income Barbell portfolio.
ETFs, Hedge Funds and Democracy
This month ETFGI, a wholly independent research and consultancy firm founded Deborah Fuhr, has made headlines with their data showing that global ETP assets will soon surpass the assets held in hedge funds. It is important to note that this inflection point coincides with record assets under management for WisdomTree Investments, Inc. (WETF). Today, close to 60% of WisdomTree’s assets are currency hedged products that were modeled off of established hedge fund trades. What other hedge fund trades are now available through an ETF, and what else could be done in the future?
The stock market, as represented by the S&P 500 Index (“S&P 500”), has just experienced a historic 6-year bull market. But, many investors did not participate in much of this appreciation. The Great Recession of 2008 caused many investors to significantly reduce their market exposure, and many advisors were unable to find thoughtful solutions for their clients to safely participate in the market; thereby creating a void that investment firms sought to fill with new protective strategies. Now, the strong rally of 2013 and 2014 highlighted some of the inefficiencies of today’s new protective strategies, leaving both investors and advisors wondering how to allocate their investments.
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Business Characteristics: Completing the Core
The historical returns of mainstream indexing may not be what investors should expect to receive in the future. In this commentary we identify ETFs that focus on business characteristics which may enhance the access to securities omitted or trimmed from the mainstream, over-bought ETFs which are tied to traditional market cap weighted indexes. The content of the commentary has been republished on ETF.com Click here to see this article.
Earnings: Quality Over Quantity; and Size Does Matter
Selecting the most appropriate ETF can be a challenging proposition, especially in the unusual markets we are experiencing today. At Toroso, we examine the underlying fundamentals and look for economic themes that indicate opportunities and pitfalls. In today’s market we believe the rosy earnings picture is hiding a real problem from most investors. The quality of the earnings can shine a light on how an investor can position the portfolio to minimize risks relating to the inflated earnings picture we see in today’s equity markets.
Want Tail Risk Protection?
The goal of Modern Portfolio Theory (MPT) is to have a portfolio of assets that each have positive expected long-term returns, and are negatively correlated to each other, so as to help smooth the volatility of the overall portfolio and increase the overall returns through rebalancing. This commentary explores the impact of volatility and several methods of providing downside protection.
Smart Beta and Betting on Unicorns
Smart beta is the popular buzzword that describes an emerging trend of alternatively weighted indexes in the ETP world. This catchy term implies a panacea and evergreen solution to some of the common issues often associated with traditional market cap indexing. If this were the case, just like unicorns, the Holy Grail and the fountain of youth provide mythical solutions to our biggest concerns; smart beta should solve our investment conundrums. Still, even myths have value in our society.
Alternative to What?
The world of alternative investing has experienced massive expansion in the past few years through new mutual funds and Exchange-Traded Products (ETPs). Until now, this part of the investment universe has been relatively opaque and inaccessible to the average investor. In this commentary, Toroso defines the alternative ETP landscape and concludes with one method of using these types of ETPs to improve portfolios.