Alpha/Beta Series: Sector Strategies

Transcription

1 Alpha/Beta Series: Sector Strategies Live Webinar June 14 2PM EST Sponsored by:

2 Today s Webinar: Alpha/Beta Mebane Faber Chief Investment Office Cambria Matt Hougan President, ETF Analytics Global Head of Editorial IndexUniverse David Botset Senior V.P., ETFs Guggenheim How To Evaluate Sectors How To Evaluate Sector ETFs Sponsored by:

3 Combining Momentum Strategies A Quantitative Approach to Tactical Asset Allocation published in the Spring 2007 issue of The Journal of Wealth Management. Relative Strength Strategies for Investing, April 2010.

4 Combining Momentum Strategies 1. Trendfollowing 2. Relative Strength 3. Combining the Two

5 Risk Management "The first rule is not to lose. The second rule is not to forget the first rule. -Warren Buffett

6 I can calculate the motion of heavenly bodies but not the madness of men Source: Marc Faber, Gloom Boom Doom 6

7 Source: Global Financial Data Trendfollowing Hypothetical Buy & Sell Signals

8 Trendfollowing month simple moving average. Rebalances monthly. Moves to cash (T-Bills) when out of the market. 10 US Sectors Source: Global Financial Data

9 Trendfollowing,

10 Relative Strength ,3,6,9,12 month relative strength (total return). Rebalances monthly. 3 6 % outperformance per year. Source: Global Financial Data

11 Relative Strength,

12 Combining Relative Strength & Trend Rank by 1,3,6,9,12 month relative strength (total return). Moves to cash if below long term moving average. Rebalances monthly. Source: Global Financial Data

13 Where Are We Now? 1.Energy 2.Healthcare 3.Real Estate Source: Global Financial Data

14 Improvements 1.More asset classes. 2.Granularity within asset class. 3.Multiple time frames. 4.Other factors, Value, Economic. Source: Global Financial Data

15 Matt Hougan President, ETF Analytics Global Head of Editorial IndexUniverse Sector Beta: Understanding Classifications & Evaluating ETFs

16 The Jellybean Problem

17 Introduction to Sector Strategies GICS vs ICB Different Names, Similar Structures GICS ICB Level 1 10 Sectors 10 Industries Level 2 24 Industry Groups 19 Supersectors Level 3 68 Industries 41 Sectors Level Subindustries 114 Subsectors

18 Sectors vs Industries GICS Sectors Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities ICB Industries Consumer Services Consumer Goods Oil & Gas Financial Health Care Industrial Technology Basic Materials Telecommunications Utilities

19 Thomson Reuters Business Classification (TRBC)

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21 GICS vs ICB Breakdown of S&P 500 GICS, ICB & TRBC Breakdown of SPY Utilities Telecom Materials IT/Tech Industrials Health Care Financials Energy/Oil & Gas Con Staples/Goods Con Discret/Services ICB SPY GICS SPY 0% 5% 10% 15% 20%

22 GICS vs ICB Breakdown of MSCI EAFE GICS vs ICB Breakdown of MSCI EAFE Utilities Telecom Materials IT/Tech Industrials Health Care Financials Energy/Oil & Gas Con Staples/Goods Con Discret/Services ICB EFA GICS EFA 0% 5% 10% 15% 20% 25%

23 Percent Return GICS vs. ICB Performance: Consumer Splits Consumer Sector ETFs TRR IYC IYK XLP XLY

24 Sector Correlations

25 Percent Return GICS vs. ICB Performance: Energy Energy Sector ETFs TRR IYE XLE

26 Percent Return GICS vs. ICB Performance: Financials Financial Sector ETFs TRR IYF XLF

27 Industry Breakdown: SPY through the Lens of TRBC Name Ticker GICS ICB Industry TRBC Sector Aetna Inc New AET Health Care Health Care FINANCIALS Cigna Corp CI Health Care Health Care FINANCIALS Humana Inc HUM Health Care Health Care FINANCIALS Wellpoint Inc WLP Health Care Health Care FINANCIALS Mastercard Inc MA IT Financials FINANCIALS Visa Inc V IT Financials FINANCIALS Fidelity Natl Information FIS IT Industrials FINANCIALS Dun & Bradstreet Corp Del N DNB Industrials Consumer Services FINANCIALS

28 SPY TRBC vs GICS: Non-Financials Name Ticker GICS TRBC Sector Plum Creek Timber Co Inc PCL Financials BASIC MATERIALS Weyerhaeuser Co WY Financials BASIC MATERIALS Host Hotels & Resorts Inc HST Financials CYCLICAL CONSUMER Health Care Reit Inc HCN Financials HEALTHCARE Hcp Inc HCP Financials HEALTHCARE Ventas Inc VTR Financials HEALTHCARE Moodys Corp MCO Financials INDUSTRIALS Public Storage PSA Financials INDUSTRIALS Leucadia Natl Corp LUK Financials INDUSTRIALS

29 SPY TRBC vs ICB: Non-Financials Name Ticker ICB TRBC Sector Plum Creek Timber Co Inc PCL Financials BASIC MATERIALS Weyerhaeuser Co WY Financials BASIC MATERIALS Host Hotels & Resorts Inc HST Financials CYCLICAL CONSUMER Health Care Reit Inc HCN Financials HEALTHCARE Hcp Inc HCP Financials HEALTHCARE Ventas Inc VTR Financials HEALTHCARE Moodys Corp MCO Financials INDUSTRIALS Public Storage PSA Financials INDUSTRIALS Western Un Co WU Financials INDUSTRIALS

30 Percent Return Financial ETFs: Performance IYF XLF VFH FXO RYF PFI

31 Percent Return 10 Financial ETFs: Performance in a Bear Market 10/10/07-3/9/ IYF XLF VFH FXO RYF PFI -90 Oct-07 Apr-08 Oct-08

32 The Difference? Holdings RYF ACE LIMITED 1.39% ACE Ltd. 2.53% PFI AMERICAN EXPRESS COMPANY AVALONBAY COMMUNITIES INC 1.39% Ameriprise Financial Inc. 2.46% 1.43% CB Richard Ellis Group Inc. (Cl A) 2.46% BOSTON PROPERTIES INC 1.43% CNA Financial Corp. 2.52% CHUBB CORPORATION 1.41% Discover Financial Services 2.49% EQUITY RESIDENTIAL 1.41% Franklin Resources Inc. 2.53% MOODY'S CORPORATION 1.64% Moody's Corp. 2.79% SIMON PROPERTY GROUP INC. 1.39% NYSE Euronext 2.52% SLM CORPORATION 1.37% Prudential Financial Inc. 2.47% VORNADO REALTY TRUST 1.38% Travelers Cos. Inc. 2.57%

33 Variety of Performance Stats: Financial ETFs 1 yr Perf Max Return Min Return Sharpe Ratio Volatility Max Drawdown IYF XLF VFH RYF RWW PFI FXO

34 Percent Return Biotech Performance IBB BBH PBE XBI FBT

35 Sector Choices: Biotech Performance Ticker Name Bull Market 3/9/2009-5/31/2011 Bear Market 10/10/2007-3/9/2009 BBH Biotech HOLDRS 39.33% -3.35% IBB ishares Nasdaq Biotechnology 86.28% % PBE PowerShares Dynamic Biotech & Genome Portfolio % % XBI SPDR S&P Biotech 72.02% % FBT First Trust NYSE Arca Biotechnology % %

36 Percent Return Theme Investing: Wind FAN PWND Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11

37 Sector Choices: Thematic Benchmarks: What Is Wind? Purity of Benchmark Rules

38 Any Questions? Mebane Faber Chief Investment Office Cambria Matt Hougan President, ETF Analytics Global Head of Editorial IndexUniverse David Botset Senior V.P., ETFs Guggenheim Sponsored by:

39 Thank You For more information: