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Weekly Summary of Research Findings: 9/30/19 – 10/4/19

Below is a weekly summary of our research findings for 9/30/19 through 10/4/19. These summaries give you a quick snapshot of our content the past week so that you can quickly decide what’s relevant to your investing needs.

Subscribers: To receive these weekly digests via email, click here to sign up for our mailing list. Keep Reading

In Search of the Bear?

Is intensity of public interest in a “bear market” useful for predicting stock market return? To investigate, we download monthly U.S. Google Trends search intensity data for “bear market” and relate this series to monthly S&P 500 Index returns. For comparison with the “investor fear gauge,” we also relate search data to monthly CBOE option-implied S&P 500 Index volatility (VIX) levels. Google Trends analyzes a percentage of Google web searches to estimate the number of searches done over a certain period. “Each data point is divided by the total searches of the geography and time range it represents to compare relative popularity… The resulting numbers are then scaled on a range of 0 to 100 based on a topic’s proportion to all searches on all topics.” Using the specified data during January 2004 (earliest available on Google Trends) through August 2019, we find that: Keep Reading

Are Managed Futures ETFs Working?

Are managed futures, as implemented by exchange-traded funds (ETF), attractive? To investigate, we consider three managed futures ETFs, all currently available:

  1. WisdomTree Managed Futures Strategy (WTMF) – seeks positive total returns in rising or falling markets that are uncorrelated with broad market equity and fixed income returns via diversified combination of commodities, currencies and interest rates futures.
  2. First Trust Morningstar Managed Futures Strategy (FMF) – seeks positive returns that are uncorrelated to broad market equity and fixed income returns via a portfolio of exchange-listed futures.
  3. ProShares Managed Futures Strategy (FUT) – seeks to profit in rising and falling markets by long and short positions in futures across asset classes such as commodities, currencies and fixed income such that each contributes equally to portfolio risk.

We focus on compound annual growth rate (CAGR), maximum drawdown (MaxDD) and correlations of returns with those of SPDR S&P 500 (SPY) and iShares Barclays 20+ Year Treasury Bond (TLT) as key performance statistics. We use Eurekahedge CTA/Managed Futures Hedge Fund Index (the index) as a benchmark. Using monthly returns for the three funds as available through August 2019, and contemporaneous monthly returns for the benchmark index, SPY and TLT, we find that: Keep Reading

Consumer Credit and Stock Returns

Does expansion (contraction) of consumer credit indicate growing (shrinking) corporate sales, earnings and ultimately stock prices? The Federal Reserve collects and publishes U.S. consumer credit data on a monthly basis with a delay of about five weeks. Using monthly seasonally adjusted total U.S. consumer credit for January 1943 through July 2019 and monthly Dow Jones Industrial Average (DJIA) closes for January 1943 through August 2019 (almost 77 years), we find that: Keep Reading

Active Investment Managers and Market Timing

Do active investment managers as a group successfully time the stock market? The National Association of Active Investment Managers (NAAIM) is an association of registered investment advisors. “NAAIM member firms who are active money managers are asked each week to provide a number which represents their overall equity exposure at the market close on a specific day of the week, currently Wednesdays. Responses can vary widely [200% Leveraged Short; 100% Fully Short; 0% (100% Cash or Hedged to Market Neutral); 100% Fully Invested; 200% Leveraged Long]. Responses are tallied and averaged to provide the average long (or short) position or all NAAIM managers, as a group [NAAIM Exposure Index].” Using historical weekly survey data and weekly Wednesday-to-Wednesday dividend-adjusted returns for SPDR S&P 500 (SPY) over the period July 2006 through early September 2019 (685 surveys), we find that: Keep Reading

SACEMS, SACEVS and Trading Calendar Updates

We have updated monthly allocations and performance data for the Simple Asset Class ETF Momentum Strategy (SACEMS) and the Simple Asset Class ETF Value Strategy (SACEVS). We have also updated performance data for the Combined Value-Momentum Strategy.

We have updated the Trading Calendar to incorporate data for September 2019.

Preliminary SACEMS and SACEVS Allocation Updates

The home page, Simple Asset Class ETF Momentum Strategy (SACEMS) and Simple Asset Class ETF Value Strategy (SACEVS) now show preliminary positions for October 2019. For SACEMS, past returns for ranks two through four are very close, so the second and third places could change by the close. For SACEVS, allocations are unlikely to change.

Long-only Stock Momentum with Volatility Timing

What is the best way to avoid stock momentum portfolio crashes? In her July 2019 paper entitled “Momentum with Volatility Timing”, Yulia Malitskaia tests a long-only volatility-timed stock momentum strategy that exits holdings when strategy volatility over a past interval exceeds a specified threshold. She focuses on a recent U.S. sample that includes the 2008-2009 market crash and its aftermath. She considers the following momentum portfolios:

  • WML10 – each month long (short) the tenth, or decile, of stocks with the highest (lowest) returns from 12 months ago to one month ago.
  • W10 and L10 – WML10 winner and loser sides separately.
  • WML10-Scaled – adjusts WML10 exposure according to the ratio of a volatility target to actual WML10 annualized daily volatility over the past six months. This approach seeks to mitigate poor returns when WML10 volatility is unusually high.
  • W10-Timed – holds W10 (cash, with zero return) when W10 volatility over the past six months is below (at or above) a specified threshold. This approach seeks to avoid poor post-crash, loser-driven WML10 performance and poor W10  performance during crashes.

She performs robustness tests on  MSCI developed and emerging markets risk-adjusted momentum indexes. Using daily and monthly returns for W10 and L10 portfolios since 1980 and for MSCI momentum indexes since 2000, all through 2018, she finds that:

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Weekly Summary of Research Findings: 9/23/19 – 9/27/19

Below is a weekly summary of our research findings for 9/23/19 through 9/27/19. These summaries give you a quick snapshot of our content the past week so that you can quickly decide what’s relevant to your investing needs.

Subscribers: To receive these weekly digests via email, click here to sign up for our mailing list. Keep Reading

Are Equity Put-Write ETFs Working?

Is systematically selling equity put options, as implemented by exchange-traded funds (ETF), attractive? To investigate, we consider four equity put-write ETFs, two dead and two living:

  1. US Equity High Volatility Put Write (HVPW) – oriented toward individual stocks (dead).
  2. ALPS Enhanced Put Write Strategy (PUTX) – index-oriented (dead).
  3. WisdomTree CBOE S&P500 PutWriteStrat (PUTW) – index-oriented (living).
  4. BMO US Put Write (ZPW.TO) – oriented toward individual stocks (living).

Because available samples are short, we focus on daily return correlation with SPY, average daily return, standard deviation of daily returns and sample period cumulative return. For the living ETFs, we include maximum drawdowns (MaxDD) based on daily data. We consider SPDR S&P 500 (SPY) and CBOE S&P 500 PutWrite Index (PUT) as benchmarks. Using daily returns for the four ETFs as available through early September 2019, and contemporaneous daily returns for SPY and PUT, we find that: Keep Reading

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