Tag Archives: apple

Fidelity Select Funds Portfolio Optimized For Low Volatility Performed Well In 2015

Summary LOW volatility portfolio: FIBIX, FSBIX, FSPHX, FSELX, FSCHX, FBMPX. MID volatility portfolio: FLBIX, FSBIX, FSPHX, FSELX, FSCHX, FBMPX. HIGH volatility portfolio: FLBIX, FIBIX, FSPHX, FSELX, FSCHX, FBMPX. The LOW volatility portfolio had a positive return so far in 2015 despite the interest rate uncertainty. In a previous article we presented the performance of a portfolio made up of five Fidelity select mutual funds. That portfolio had a stellar performance over the whole 27 year period starting in 1987. Back in July we decided to replace the GNMA fund (MUTF: FGMNX ) with two high quality government bonds. The performance of the two portfolios was discussed in the July article, the conclusion being that the new portfolio performed slightly better than the old one. In the first article I used a Relative Strength (RS) strategy based on a three-month look back evaluation period. In the second article I used a Mean-Variance Optimization (MVO) algorithm with 65-day look back evaluation period. While the MVO algorithm may approximate the RS algorithm if one selects the proper volatility target, the MVO strategy is very flexible, and it allows the investor to adapt it to the variable market environment. It turns out that during the first nine months of 2015 the RS strategy, as well as the Dual Momentum (DM) one, has performed poorly with a return of -15.22% for a 3-month look back, or -10.15% for a 12-month look back. The interested reader may verify the performance of Dual Momentum and Relative Strength on the portfoliovisualizer.com site. In this article we shall use only the MVO strategy and we want to emphasize the performance of the new portfolio during the first three quarters of 2015. We shall present three versions of this new portfolio for three levels of volatility: low, mid and high. The three versions are meant for investors with different risk tolerance. They also are meant for investors who may want to vary their risk level based on their evaluation of the markets. The portfolios are made up of the following funds: Fidelity Select Multimedia Portfolio (MUTF: FBMPX ) Fidelity Select Chemicals Portfolio (MUTF: FSCHX ) Fidelity Select Electronics Portfolio (MUTF: FSELX ) Fidelity Select Health Care Portfolio (MUTF: FSPHX ) Fidelity Spartan Long Term Treasuries Fund (MUTF: FLBIX ) Fidelity Spartan Intermediate Term Treasuries Fund (MUTF: FIBIX ) Fidelity Spartan Short Term Treasuries Fund (MUTF: FSBIX ) With the seven funds above, we created three portfolios to be used at three volatility levels: low, mid and high. All portfolios include the same four equity funds, but each one includes only two of the three treasury funds. The high risk uses FLBIX and FIBIX, the mid risk includes FLBIX and FSBIX, while the low risk has FIBIX and FSBIX. The data for the study were downloaded from Yahoo Finance on the Historical Prices menu for FBMPX, FSCHX, FSELX, FSPHX, FLBIX, FIBIX and FSBIX. We use the daily price data adjusted for dividend payments. The portfolio is managed as dictated by a variance-return optimization algorithm developed on the Modern Portfolio Theory ( Markowitz ). The allocation is rebalanced monthly at market closing of the first trading day of the month. In table 1 we present the performance of the portfolio for three levels of risk. Table 1. Portfolio performance from January 2007 to October 2015 TotRet% CAGR% VOL% maxDD% Sharpe Sortino 2015 return LOW risk 109.22 8.80 5.49 -7.50 1.60 2.10 1.75 MID risk 287.58 16.75 13.37 -16.97 1.25 1.69 -0.49 HIGH risk 569.16 24.26 20.22 -16.97 1.20 1.70 -2.45 The realized volatilities of the portfolios are in agreement with their names; the LOW risk had 5.49% annualized volatility, the MID had 13.37%, while the HIGH had 20.22%. Also, please notice the strong correlation between the returns CAGR and volatility of the portfolios. On the other hand, during 2015 the LOW volatility portfolio produced a positive return of 1.75%, while the MID and HIGH risk portfolio suffered negative returns. In figure 1 we show the graphs of the portfolio equities for the period from January 2007 to October 2015. (click to enlarge) Figure 1. Equity curves for three portfolios adaptively optimized for low, medium and high risk targets. Source: All charts in this article are based on EXCEL calculations using the adjusted daily closing share prices of securities. In figure 2, 3 and 4 we show the time variation of the percentage allocation of the funds for the period since January 2014 to October 2015. We opted for this shorter time period to get graphs that are easily readable. We are mostly interested in the allocations during 2015. (click to enlarge) Figure 2. Percentage allocation of the funds for low risk portfolio January 2014 to October 2015. One can see in figure 2 that most of the time the portfolio was invested about 50% in the short term treasury fund FSBIX. In figure 3 we show the time variation of the percentage allocation of the funds for mid risk. (click to enlarge) Figure 3. Percentage allocation of the funds for MID risk portfolio January 2014 to October 2015. (click to enlarge) Figure 4. Asset allocations for the portfolio adaptively optimized for the HIGH risk target January 2014 to October 2015.. Since July 2015 the high risk portfolio was invested 100% in treasuries; in FSLBX in July and August, and in FIBIX in September and October. The current fund allocations are shown in table 3. Table 3. Asset allocations for October 2015 FSELX FBMPX FSPHX FSCHX FLBIX FIBIX FSBIX LOW risk 0% 0% 0% 0% 0% 0% 100% MID risk 0% 0% 0% 0% 88% 0% 12% HIGH risk 0% 0% 0% 0% 0% 100% 0% Conclusion The low risk Fidelity select portfolio performed better than the mid and high risk portfolios. While the return of 1.75% is relatively modest, it is better than many other choices. The losses of the mid risk portfolio are very small at -0.49%, while the high risk portfolio lost the most at -2.45%. In hindsight, investing in a low risk portfolio was the better choice due to the fact that the market environment was very difficult since the beginning of 2015.

The iShares MSCI Belgium Capped ETF: What’s In A Name?

An interesting mix of economic alliances. A niche economy well integrated within the EU manufacturing network. Surprisingly consistent positive long term returns along with dividend distributions. One of the many nice things about 21st century Europe is the way it manages to lead the way in the arts, science, thought and politics being somehow, thoroughly ‘today’ and yet, managing to hold on to its own unique traditions, culture and ambience. Take the Kingdom of Belgium , for instance. Most people might think of Belgium as a quaint and charming tourist destination. Well, there’s more to it than that. In name, it’s a Kingdom, in actuality, a federation: Dutch Speaking Flanders, French speaking Wallonia and the capital, Brussels all governed by a parliament. Just briefly: after the 1830 revolt against King William I of Netherlands, Belgium seceded and formed its own government, under King Leopold I, succeeded by his son, Leopold II, Belgium evolved into a European industrial power to be reckoned with. In 1921, Belgium and Luxembourg formed an economic union. In 1944, a second economic-political union was formed with Netherlands and Luxembourg called the Benelux union. In 1957, the three nations of Benelux were among the original signatories to the Treaty of Rome, the foundation of today’s European Union. It’s interesting to note that the Benelux brand name and the Belgium-Luxemburg economic union still exist inside the larger EU, today. According to Europa.eu , geographically, Belgium is rather small, covering approximately 11,787 mi 2 , home to 2.2% of the total EU population; about 11.204 million citizens. So clearly, Belgium is far more complex than a mere tourist destination. Fund Return vs Index 3-Months Year to Date 1 Year 3 Year 5 Year 10 Year Inception 3/12/1996 EWK Market Shares 1.24% 4.48% 2.89% 12.60% 8.11% 2.14% 5.27% EWK Total Return 2.951% 6.48% 2.26% 12.56% 7.99% 2.11% 5.27% MSCI Index N/A N/A 1.81% 12.17% 9.38% 2.48% 5.57% (Data From BlackRock) One would think that such a small state could not provide notable investment returns. Surprisingly, that is not the case. In fact, the iShares MSCI Belgium Capped ETF (NYSEARCA: EWK ) has done reasonably well over the entire 19 ½ year history of the fund, even during the most difficult EU recession years. Further, it’s the only Belgium focused ETF with over 95% Belgium holdings. The first question to ask is about the general nature of the Belgium economy, including imports, exports and primary trading partners. (Data from Trading Economics) Belgium’s GDP growth measured 0.4% for the first two quarters of 2015, pretty much in line with the EU-28; Per capita GDP is 23% higher than the EU-28. Belgium does rank 15th in EU-28 unemployment, high, but below the EU-28 average. As an export economy, Belgium runs a positive balance of trade of about $3.07 billion; however, is a net borrower with a current account deficit of $1.827 billion. Lastly, wealth is well distributed as demonstrated by its GINI index of 29.9. In a nutshell, Belgium is reasonably well off nation with average growth and above average wealth distribution. (click to enlarge) (Data from Trading Economics) Belgium trades mainly within the EU. Almost 71% of total exports are destined for its top ten global trade partners; over 59% of total exports are destined for EU member states. The leading three destinations are Germany, 15.85%; Benelux partner Netherlands, 14.64% and France at 11.79%, of total exports. Similarly, over 74% of Belgium’s imports originate from its top ten global trading partners; over 59% of total imports originate from EU members led by Netherlands, 19.37%, Germany, 15.14% and France at 11.14%, of total imports. The next reasonable question, knowing now Belgium’s global trade relationships, is about Belgium’s primary exported and imported goods. Indeed, Belgium’s exports are well diversified. Belgium’s top 40 (of over 1200) exports account for just over 50% of total exports and similarly Belgium’s top 40 (of over 1200) imports account for about 50% of total imported products. (click to enlarge) It should be noted that, usually, when there’s a similarity between imported and exported products, it’s an indication of a semi -manufactured product trade. That is to say, partially completed or bulk products are imported for further processing or completion, then exported to another destination. What it all adds up to is that 30% of Belgium’s niche economy is nestled in the EU manufacturing network and a function of inter-EU trade. How, then, does the iShares MSCI Belgium Capped ETF allocate investment capital? The first thing to note is the fund’s sector allocation. The fund most heavily weights Consumer Staples at 32.06% and Financials, 27.42%; about 60% of the fund. This is followed by Health Care, 11.03%; Materials, 9.68%; Discretionary, 4.32% and Telecom, 4.17% comprising about 30% of the fund. The remaining 10% is allocated to IT, 3.64%; Industrials, 3.58%; Energy, 2.54%; Utilities, 1.33% and a small cash holding. (Data from BlackRock) Consumer Staples is the heaviest weighted sector. Anheuser Busch Inbev ( OTCPK:AHBIF ) has a 22.82% fund weighting, hence an overwhelming 68% of the Consumer Staple sector. Anheuser Busch is a global heavyweight with 200 beer and beverage brands spanning the globe. Recently Anheuser Busch attempted a takeover of SABMiller ( OTCPK:SBMRY ). If this takeover is successful for Anheuser, it will give the company a major presence in Africa and Asia; two markets where it is currently lacking. Top Consumer Staple Holding Fund Weighting Market Cap (billions) Yield Payout Ratio Price/earnings Price/Book Beta Anheuser Busch Inbev 22.8168% $174.9 2.31% 60.53% 18.86 3.69 0.81 (Data From Reuters and Yahoo!) Of the 27.41% of the Financial Sector 17.15%, or about 60% of the financial allocation, is concentrated in three holdings, KBC Group ( OTCPK:KBCSY ), Ageas ( OTCPK:AGESY ) and Groupe Bruxelles Lambert ( OTC:GBLBY ). Briefly, KBC is a financial holding company for KBC Bank and KBC Insurance, serving Belgium, central and Eastern Europe and Russia. Ageas is primarily an insurer, serving, Belgium, the United Kingdom, Continental Europe plus a wholly owned subsidiary in Hong Kong. Lastly Groupe Bruxelles Lambert [GBLB] is also a holding company, whose portfolio is focused on diversified industrials in France and Spain, plus wholly owned subsidiaries in the ‘Benelux region’, Germany and Ireland. Top Financial Holdings Fund Weighting Market Cap (billions) Yield Payout Ratio Price/earnings Price/Book Beta KBC Groep 8.7022% $26.37 2.66% 44.33% 12.49 1.39 2.36 Ageas 4.7507% $9.68 3.01% NA 9.27 0.75 1.66 Groupe Bruxelles Lambert 3.6953% $12.76 2.96% 41.20% 10.34 0.79 0.93 (Data From Reuters and Yahoo!) The third major sector is Health Care at 11.03%. Of the six Health Care holdings, UCB ( OTCPK:UCBJY ) is weighted heaviest at 5.3852% of the fund, or 48.8% of the sector’s holdings. UCB is classified as a biopharmaceutical, focusing on immunology and the central nervous system. UCB is Belgium based with international reach: 25 offices distributed in Europe as well as the Asia-Pacific region, the Americas and Central Asia. Top Health Care Holding Fund Weighting Market Cap (billions) Yield Payout Ratio Price/earnings Price/Book Beta UCB 5.3852% $14.84 1.17 NA 60.10 2.24 0.48 (Data From Reuters and Yahoo!) The next major sector, Materials has five holdings dominated by Solvay ( OTCPK:SVYZY ), 3.5838% of the fund and Umicore ( OTCPK:UMICY ) at 2.811%. Together they comprise 6.3948% of the fund and thus about 66.1% of the Material sector’s holdings. Solvay focuses on chemicals used in consumer goods, healthcare, and agriculture, to name a few as well as the development of advance materials, chemicals and polymers. Umicore is similar producing industrial chemicals, metal alloys materials. It’s interesting to note that Umicore generates most of its revenues from clean technologies. Top Material Holdings Fund Weighting Market Cap (billions) Yield Payout Ratio Price/earnings Price/Book Beta Solvay 3.5838% $9.39 2.58% 92.60% 26.71 1.17 1.31 Umicore 2.811% $4.705 2.00% 47.34% 23.58 2.27 0.95 (Data From Reuters and Yahoo!) For the sake of completeness, the table below briefly outlines the top holding in the remaining sectors along with dividend yields and payout ratios when available. Top Remaining Sector Holdings Business Sector Fund Weighting Yield Payout Ratio Price/earnings Price/Book Beta Telenet ( OTCPK:TLGHY ) Diversified media Discretionary 2.0525% 0.00% 0.00 32.15 NA 0.58 Proximus ( OTCPK:BGAOY ) Mobile and Internet Telecom 3.2881% 0.00% 0.00 18.29 3.51 0.62 Melexis ( OTC:MLXSF ) Semiconductors IT 1.3538% 2.19% NA 18.51 7.28 1.19 Bpost ( OTCPK:BPOSY ) Parcel Post Industrials 1.5226% 4.36% NA 14.90 5.50 NA Euronav ( OTC:EONVY ) Crude oil Transport and Storage Energy 1.8389% 3.59% NA 16.96 1.36 1.34 ELIA System ( OTC:ELIAF ) High Voltage Transmission Utilities 1.3307% 2.62% 54.65% 15.61 1.16 0.15 (Data From Reuters and Yahoo!) The fund itself has 8,800,000 shares outstanding with a 20 day average volume of almost 64,000 shares. The fund’s price to earnings ratio is 21.52 and price to book multiple is 1.89 times. The beta is low at 0.87, and it deviates from its 3 year average price by about ±12.4%. The fund has a current annualized yield of 3.38% and a twelve month trailing yield of 2.21%. Lastly, the fund is trading at a premium of 0.68% to its net asset value. Lastly, it has at least one annual dividend per year since inception, 12 March, 1996. (click to enlarge) To sum up, here’s a single country fund outperforming larger single country EU member focused funds. It has a niche economy in the EU as well as two other regional economic unions. Belgium is also home to dividend paying global powerhouse companies. All in all, for those investors wishing to construct their own global economic ETF portfolio, here’s a relatively unknown single country fund, with good returns, and perhaps a guide to a nice vacation destination! Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.