Meltdown Investing: ETF Strategies for Times of Crisis

Transcription

1 Meltdown Investing: ETF Strategies for Times of Crisis Cory Banks, Moderator Managing Editor, ETFR, IndexUniverse Kenny Feng, Panelist CEO & President, Alerian Rod Jones, Panelist Executive Director, Head of North American Sales, STOXX Jerry Miccolis, Panelist CIO, Brinton Eaton Wealth Advisors

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3 Meltdown Investing: ETF Strategies for Rod Jones, Panelist Executive Director, Head of North American Sales, STOXX Times of Crisis

4 3 Strategies for dealing with portfolio drawdown in times of crisis 1 Volatility Allocation» Allocate percent of portfolio to short term volatility futures index 2 Equity Dividend Allocation» Find dividend index not exposed to risk factor impacting the market 3 Risk Control Equity Allocation» Choose risk controlled index as core allocation

5 Volatility Futures Indices Test Case Setup: understand traditional asset allocation versus a 10% allocation to volatility futures index Asset Class Index Percent Allocations Portfolio 1 Portfolio 2 Portfolio 3 US Stocks STOXX USA 50 Index 50% 35% 40% International Stocks STOXX Global 200 Index 20% 15% 20% US Bonds Barclays 20+ Treasury Index 30% 50% 30% Volatility Euro STOXX 50 Volatility 10% Short Term Futures Index

6 Adding Volatility Futures Index increases return and lowers risk Growth of 100 dollars January 1st 2007 to January 9th 2012 Performance Portfolio I II III Annualized Return 2.65% 3.92% 4.87% Annualized Risk 14.34% 10.73% 11.88% Sharpe Ratios /10/2007 5/10/2007 9/10/2007 1/10/2008 5/10/2008 9/10/2008 1/10/2009 5/10/2009 9/10/2009 1/10/2010 5/10/2010 9/10/2010 1/10/2011 5/10/2011 9/10/2011 Portfolio l Portfolio ll Portfolio lll 6

7 Dividend Indices Being discerning about the type of dividend exposure is important. Highlights need for transparency STOXX Select Dividend Indices Date STOXX Select STOXX Select STOXX Select STOXX Dividend Europe Dividend Americas Dividend Asia/Pacific US » 2002 price momentum, the technology sector and high book value of equity were important exposures to avoid, dividend indices had little exposure» 2008 financial service sector and leverage (financial & operating) were exposures to avoid, all dividend indices had exposure» 2011 regional exposure really mattered Dividends are important but other benchmark exposures are also important

8 Risk Controlled Indices: Realized volatility varies significantly over market cycle Investor is either over or under volatility budget /30/2002 2/28/2003 8/30/2003 2/29/2004 8/30/2004 2/28/2005 8/30/2005 2/28/2006 8/30/2006 2/28/2007 8/30/2007 2/29/2008 8/30/2008 2/28/2009 8/30/2009 2/28/2010 8/30/2010 2/28/2011 Under volatility budget Over volatility budget Budgeted Volatility Realized Volatility, STOXX Global 200 Blue Chip Index Core investment strategies need to be risk controlled

9 Adding volatility to the index rule book is a significant insight for wealth generation Risk controlled indices target volatility: 10, 15, 20% Growth of 100 dollars, March 2002 to December /26/2002 3/26/2003 3/26/2004 3/26/2005 3/26/2006 3/26/2007 3/26/2008 3/26/2009 3/26/2010 3/26/2011 STOXX Canada 50 Risk Control 15% Index STOXX Canada 50 Index 9

10 Disclaimer The indices in the presentation and the trademarks used in the index names are the intellectual property of STOXX Ltd, or SIX Swiss Exchange AG, or Deutsche Börse AG. The use of the STOXX, DAX, and SMI indices and of the respective index data for financial products or for other purposes requires a license from STOXX, Deutsche Börse AG, or SIX Swiss Exchange AG. STOXX and its owners do not make any warranties or representations, express or implied, with respect to the timeliness, sequence, accuracy, completeness, currentness, merchant ability, quality, or fitness for any particular purpose of its index data. STOXX and its owners are not providing investment advice through the publication of indices or in connection therewith. In particular, the inclusion of a company in an index, its weighting, or the exclusion of a company from an index, does not in any way reflect an opinion of STOXX or its owners on the merits of that company. Financial instruments based on the STOXX, DAX, or SMI indices are in no way sponsored, endorsed, sold, or promoted by STOXX or its owners. About STOXX STOXX Ltd. is an established and leading index specialist of European origins. The launch of the first STOXX indices in 1998, including the EURO STOXX 50 Index, marked the beginning of a unique success story, based on the company s neutrality and independence. Since then, STOXX has been at the forefront of market developments, continuously expanding its portfolio of innovative indices and now operating on a global level, across all asset classes. The indices are licensed to more than 400 companies among the world s largest financial products issuers, capital owners, and asset managers. They are used not only as underlyings for financial products such as ETFs, futures and options, and structured products, but also for risk and performance measurement. In addition, STOXX Ltd. is the marketing agent for the indices of Deutsche Börse AG and SIX Swiss Exchange Indices, among them the DAX and the SMI indices.

11 Meltdown Investing: ETF Strategies for Jerry Miccolis, Panelist CIO, Brinton Eaton Wealth Advisors Times of Crisis

12 Sector Rotation as Risk Management S&P 500 TR Sector Rotation December 1991 December S&P 500 TR Sector Rotation December 1999 December Dec 91 Dec 92 Dec 93 Dec 94 Dec 95 Dec 96 Dec 97 Dec 98 Dec 99 0 Dec 99 Dec 00 Dec 01 Dec S&P 500 TR Sector Rotation December 2002 December S&P 500 TR Sector Rotation December 2007 September Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 0 Dec 07 Dec 08 Dec 09 Dec 10

13 Sector Rotation as Risk Management S&P 500 TR Sector Rotation December 1991 September

14 Sector Rotation as Risk Management S&P 500 TR Sector Rotation 12/11/ /31/ % 21.2% 12/31/ /31/ % 19.9% 12/31/ /31/ % 16.3% 12/31/2007 9/30/ % 7.1% 12/11/1991 9/30/ % 16.9%

15 How Else Did We Test This Strategy? Rolling annual returns 80% S&P 500 TR Sector Rotation 60% 40% 20% 0% 20% 40% 60% Maximum drawdowns Parameter robustness