Tag Archives: etfs

Nontraditional Bond Funds: Best And Worst Of December

The Federal Reserve finally raised interest rates in December, and nontraditional bond funds fell in response. The average mutual fund and ETF suffered a 0.75% loss for the month, equaling half of its 1.50% decline for all of 2015. This compares to a lighter 0.32% December loss for the Barclays U.S. Aggregate Bond Total Return Index, which actually managed a 0.55% gain for the year. But that’s not to say that all nontraditional bond funds had a bad December or even a bad year. The month’s top performers posted gains ranging from 1.58% to 2.53%, and although they weren’t necessarily the year’s best funds, their annual gains ranged from 2.38% to 6.65%. There were, of course, also underperforming nontraditional bond funds, with December losses as great as 8.71% and one-year drops of more than 26%. Without further ado, let’s look at this month’s best and worst: Click to enlarge Top Performers in December The three best-performing nontraditional bond mutual funds in December were: ROBAX was December’s top performer, posting gains of 2.53% and pushing its one-year returns to +5.34%. Those annual numbers were outdone by EOAIX, which finished second in December at +1.71% but ahead of ROBAX with 2015 gains of 6.65%. NDNAX, which was the month’s third best performer in the category, notched monthly and annual gains of 1.58% and 2.38%, respectively. Of the month’s three top performers, only EOAIX had a three-year track record, and for the 36 months ending December 31, the fund returned an annualized -0.10%, compared to the category average of +0.14%. The fund’s low three-year beta of 0.27 is attractive, but its -0.40% annualized alpha is not. Its three-year standard deviation of 5.12% is higher than the category average of 3.20%, indicating greater than average volatility. The fund’s three-year Sharpe ratio was 0.00. Worst Performers in December The three worst-performing nontraditional bond mutual funds in December were: HNRZX was easily December’s worst performer, posting losses of 8.71% for the month and pushing its 2015 losses to an ugly 26.31%. The fund posted huge gains of 33.23% and 34.52% in 2012 and 2013, but then an 8.47% loss in 2014 ahead of its 2015 woes, which have sunk its three-year annualized returns into the red at -3.19%. The fund is extremely volatile, with a three-year standard deviation of 16.24%, and that and its -1.17 beta and -0.37% alpha combine to give it a three-year Sharpe ratio of -0.13. DRSLX is another fund with minus signs across its returns table. The fund lost 3.92% in December and 7.13% in 2015, bringing its three-year annualized returns to -2.56%. It has extremely low (inverse) correlation to the benchmark, with a -0.07 three-year beta, but an attractive -2.43% three-year alpha. Its standard deviation of 4.48% is the lowest of the three funds with three-year track records reviewed this month, but still higher than the category average, and its three-year Sharpe ratio stood at -0.57. Finally, HYND, the third-worst performer in December, posted a monthly loss of 3.82%. The fund launched too recently to have a three-year track record, but its one-year returns for 2015 came in at -5.66%. Past performance does not necessarily predict future results. Jason Seagraves and Meili Zeng contributed to this article.

Market Neutral Funds: Best And Worst Of December

Market neutral mutual funds and ETFs returned an average of -0.06% in December and -0.10% for the entire year of 2015. The combined category’s annualized three-year returns stood at +1.01% through December 31, with 4.16% annualized volatility (“standard deviation”) and a 0.09 Sharpe ratio. The funds, which are designed to move irrespective of the broad stock and bond markets, have done their job in terms of their three-year beta relative to the Barclays U.S. Aggregate Bond Index, which stood at 0.04, and generated 0.98% alpha over that time. Click to enlarge Best Performers in December The three best-performing market neutral mutual funds in December were: BTAL, which initially launched in September 2011, returned +3.35% in December, making it the top-performing ’40 Act market-neutral fund for the month. For the year, however, BTAL gained just 0.15%, and for the three-year period ending December 31, its annualized returns stood at -2.10%. Its three-year beta of 1.04 means it had a high correlation to the Barclays U.S. Aggregate Bond Index. However, its -2.75% alpha was put you behind the index, and its above-average volatility (8.63% three-year standard deviation) resulted in a -0.15 three-year Sharpe ratio. FXMAX ranked second among market neutral funds in December, with monthly gains of 2.93%. But over the one- and three-year periods ending December 31, the fund’s returns were unattractive at -7.72% and -4.42% (annualized), respectively. Its three-year beta (0.46) and standard deviation (5.41%) were better than BTAL’s, but its three-year alpha (-5.07%) and Sharpe ratio (-0.82) were worse. Finally, the popular MNA ETF ranked third in December, with returns of +2.41%. In 2015, the ETF gained 1.45%, easily beating its peers. Its three-year annualized returns of +4.36% were comprised entirely of alpha (4.62%) relative to the Barclays U.S. Aggregate Bond Index, since the fund did its job by producing a three-year beta of 0.00 on the nose. MNA’s three-year standard deviation of 3.65% was by far the lowest of any fund reviewed this month, and its three-year Sharpe ratio of 1.27 towered above the competition. Worst Performers in December The three worst-performing market neutral mutual funds in December were: TFSMX was December’s worst performer among market neutral mutual funds and ETFs, returning -3.78% and dropping its returns for the full year into negative territory at -2.96%. The fund launched in 2004 and returned an annualized 0.83% for the three years ending December 31, with a fair 0.24 beta, 0.55% alpha, and 4.96% volatility. Its three-year Sharpe ratio stood at 0.18 as of year’s end. QuantShares’ SIZ and MOM both ranked in the bottom three, somewhat offsetting the firm’s first-place finish with BTAL. But while SIZ and MOM posted respectively disappointing one-month returns of -2.95% and -2.50% in December, MOM’s annual gains of 17.42% in 2015 made it the clear standout of the six funds reviewed this month. Indeed, MOM’s three-year annualized returns of 4.19% were only slightly bested by the more-famed MNA, but on the negative side, its 1.14 three-year beta may be less than appealing to investors looking to diversify away from fixed income. By this basis SIZ, which returned an annualized -5.07% for the three years ending December 31, looked better with its 0.13 three-year beta. SIZ and MOM had respective three-year alphas of -5.26% and +2.46%, with respecitve volatility of 6.25% and 8.45%, resulting in Sharpe ratios of -0.81 for SIZ and 0.48 for MOM. Past performance does not necessarily predict future results. Jason Seagraves and Meili Zeng contributed to this article.

ETF Update: 4 New Launches And 2 Closures

Welcome back to the SA ETF Update. My goal is to keep Seeking Alpha readers up to date on the ETF universe and to gain some visibility, both for the ETF community, and for me as its editor (so users know who to approach with issues, article ideas, to become a contributor, etc.) Every weekend, or every other weekend (depending on the reader response and submission volumes), we will highlight fund launches and closures for the week, as well as any news items that could impact ETF investors. So far January has not been the best month for buy and hold investing. As a long term investor I know stock dips are really opportunities to buy into strong companies that will not just recover but bloom again. However, even having studied behavioral portfolio management, I still get that flight response that all investors will feel at some time. As you can see in the fund flows YTD tables below, I am not the only person feeling this way. Top Redemptions Fund Name Net Flows in USD Millions SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) -4,073.29 iShares Russell 2000 ETF (NYSEARCA: IWM ) -2,108.65 PowerShares QQQ Trust ETF (NASDAQ: QQQ ) -1,996.87 iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG ) -1,648.93 iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) -1,349.74 Data Source: ETF.com Top Creations Fund Name Net Flows in USD Millions iShares Short Treasury Bond ETF (NYSEARCA: SHV ) -4,073.29 Vanguard S&P 500 ETF (NYSEARCA: VOO ) -2,108.65 iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) -1,996.87 iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ) -1,648.93 iShares 1-3 Year Treasury Bond ETF (NYSEARCA: SHY ) -1,349.74 Data Source: ETF.com Inflows and outflows can be a great reflection of what investors and money managers actually think is happening in the markets. As I don’t offer investment advice, and none of my articles should be seen as advice, I will leave it to readers to decide what these data points mean in the comments section below. However, I do want to point out that most of the top new creations are Treasury ETFs, while the redemptions are funds tracking the popular U.S. equity indices. It is up to you to decide how (or if) this information from 3 weeks of market activity will affect your portfolio strategy. Even with the churning markets there were 4 new funds launched in the last 2 weeks, so let’s jump in: Fund launches for the week of January 11th, 2015 Van Eck launches the first generic pharmaceuticals ETF (1/13): The Market Vectors Generic Drugs ETF (NASDAQ: GNRX ) focuses on companies that make the majority of their revenues from generic medication. While there are other pharmaceutical ETFs avaliable to investors, the largest being the Dynamic Pharmaceuticals ETF (NYSEARCA: PJP ), GNRX is the first funds to highlight companies focused on the generic medication market. The fund currently holds 84 companies and the top holdings feature names biotech investors are likely already familiar with; Allergan Plc (NYSE: AGN ) (8.69%), Teva Pharmaceutical (NYSE: TEVA ) (8.60%) and Baxalta Inc (NYSE: BXLT ) (5.83%). Reality Shares launches 2 more DIVCON ETFs (1/14): Last week saw the launch of the Reality Shares DIVCON Leaders Dividend ETF (BATS: LEAD ) and the company already has two more out of the gate. However, the Reality Shares DIVCON Dividend Defender ETF (BATS: DFND ) and the Reality Shares DIVCON Dividend Guardian ETF (BATS: GARD ) are both long/short portfolios, which is new for the firm. As a refresher, the DIVCON methodology “rates companies’ dividend health based on seven weighted factors our research shows are correlated with dividend growth.” According to each ETFs homepage, DFND seeks to provide long-term capital appreciation through the use of a hedged equity portfolio, while GARD provides exposure to large-cap U.S. companies with the highest probability of increasing their dividends, as measured by their DIVCON Scores. However, GARD has some twists as well. It dynamically adjusts its market exposure based on the firm’s Guard Indicator market strength gauge, making it a much more complex fund. State Street (NYSE: STT ) rolls out its innovation ETF (1/14): The SPDR FactSet Innovative Technology ETF (NYSEARCA: XITK ) tracks an index of companies selected by FactSet meant to represent the most innovative segments of the technology and electronic media industries. As described on the fund homepage, “the Index Provider considers the most innovative segments of the Technology sector and Electronic Media sub-sector to be those with the highest revenue growth and believes that these companies are often involved in cutting edge research, innovative product and service development, disruptive business models, or a combination of these activities.” Top holdings include Rovi Corporation (NASDAQ: ROVI ) (2.22%), Super Micro Computer Inc. (NASDAQ: SMCI ) (1.49%) and CyberArk Software Ltd. (NASDAQ: CYBR ) (1.42%). There were no fund launches for the week of January 18th, 2015 There were no fund closures for the week of January 11th, 2015 Fund closures for the week of January 18th, 2015 ETRACS 2xMonthly Leveraged S&P MLP Index ETN (NYSEARCA: MLPV ) UBS ETRACS 2x Leveraged Long Alerian MLP Infrastructure Index ETN (NYSEARCA: MLPL ) Have any other questions on ETFs or ETNs? Please comment below and I will try to clear things up. As an author and editor I have found that constructive feedback is the best way to grow. What you would like to see discussed in the future? How can I improve this series to meet reader needs? Please share your thoughts on this first edition of the ETF Update series in the comments section below. Have a view on something that’s coming up or a new fund? Submit an article.