NAV Premium/Discount

Happy Friday to Everyone!

One of the several nuances that make ETFs unique is there method of coming into and going out of existence – the process of Creation and Redemption.  Before ETFs and for many years, discussions surrounded Closed-End -Funds, and now ETFs, about the price level at which a particular fund may trade in comparison to the Net Asset Value of its constituents. Generally, from here we would begin the discussion of arbitrage, market inefficiency and the like – but for the purpose of this post, let’s step back and look high level at this overall landscape within the world of ETFs.

Average & Just about at NAV:  The average premium/discount across the universe of ETFs (not ETNs) is a discount of .14%.  Averages are hardly helpful statistics when looking at large distributions like this, so let’s delve in a little deeper.  The vast majority of ETFs trade incredibly close to their respective Net Asset Values.  How close,you ask?  Of the approximate 1,230 ETFs that we track daily, 818 or about 67% trade within 1% of their respective NAV.

At a Discount:  As of yesterday, there were 519 ETFs trading at various levels of discount with the preponderance of those trading at very minor discounts.  Specifically, 491 ETFs traded at discounts to their NAV of 5% or less, with only 15 ETFs trading at discounts between  5% and 10% and 9 other ETFs, most with unique stories, trading with discounts of 10% or greater.

At a Premium:  As you would expect, the story is similar on the positive side of the distribution axis. There are 702 ETFs that trade at various premiums to their respective NAVs – about 10 actually trade precisely, at least 3 decimal places, at their NAV.  Similar to the discount group, the vast majority of these Premiums are less than 5% and represent 688 of these ETFs, with 10 ETFs trading at premiums between 5% and 10% and a couple of special situation ETFs with premiums above 10%.

The best way to incorporate this data point into your ETF research and selection is to start with the ETFG Scanner, then go to Filters and simply check the Discount/Premium box under Display Fields.  This will add a column in the display for NAV Discount/Premium.

Have a terrific weekend and thank you for reading ETF Global Daily Perspectives.

Options on ETFs

From time-to-time, the research desk at ETF Global gets a call or two inquiring about options on ETFs.  Often times, the request is part of a Portfolio Manager’s process and yet at other times, the call is simply to understand if these vehicles exist and if so, are they viable considerations.  So here are a little information and some high level statistics that may help those with interest in this area.

Currently, our database reflects that there are options traded on a few hundred ETFs which reflects just a fraction of the overall universe of ETFs. Interestingly, about 10 of those are actually options on actively managed funds and most of these 10 represent the larger fixed income issues with some exceptions.  Otherwise, you generally find options on the largest and most active ETFs – no big surprise. 

As with many things in the world of ETFs, the landscape is incredibly top heavy.  A quick review of the optionable funds reveals that Volume and Open Interest drop precipitously below the Top 10 ranked funds in these categories. 

Here’s a look at the Top 10 for Open Interest on both sides of the market, as well as, the most recent daily volume - all of which is available in the Scanner at ETFG. Given the concentration of volume and open-interest at the top of these rankings, we encourage you to take a close look at the entire rankings.

  Top 10 Trading Volume

Ticker	Fund Name	Option Volume*
SPY	SPDR S&P 500 ETF	2,615,717
EEM	iShares MSCI Emerging Index Fund ETF	564,777
QQQ	Powershares QQQ Trust ETF	545,977
IWM	iShares Russell 2000 ETF	454,588
VXX	iPath S&P 500 VIX Short-Term Futuresâ„¢ ETN	257,870
GLD	SPDR Gold Shares ETF	148,687
XOP	SPDR S&P Oil & Gas Exploration & Production ETF	135,028
SLV	iShares Silver Trust ETF	121,052
XLU	SPDR Utilities Select Sector Fund ETF	119,762
FXI	iShares FTSE/Xinhua China 25 Index Fund ETF	108,435

  *10/23/13

  

  Top 10 Open Interest:  Call/Put/Total*

Ticker	Call Open Interest		Ticker	Put Open Interest		Ticker	Total Open Interest
SPY	7,052,146		SPY	12,520,990		SPY	19,573,136
SPX	4,800,428		SPX	7,885,853		SPX	12,686,281
VIX	4,325,398		EEM	4,230,930		EEM	8,087,736
BAC	4,104,430		BAC	3,376,873		BAC	7,481,303
EEM	3,856,806		IWM	3,331,615		VIX	6,706,514
FB	2,508,613		XLF	2,735,142		IWM	4,735,969
SLV	2,265,857		VIX	2,381,116		XLF	4,259,636
MSFT	2,157,095		QQQ	2,166,146		FB	4,162,244
GLD	2,074,140		VXX	2,131,832		QQQ	4,050,260
QQQ	1,884,114		FB	1,653,631		MSFT	3,631,234

  *10/23/13

There’s plenty to cover here for future posts and we urge you to take a look at the ETFG Scanner.  We will certainly revisit the topic down the road.

Thank you for reading ETFG Daily Perspectives.

Dynamic Indices

First, we would like to thank the wonderful folks from the New York City chapter of QWAFAFEW (Quantitative Work Alliance for Applied, Finance, Education and Wisdom - www.qwafafew.org) for hosting us at their event last night.  The event, which revolved around ETFs, featured two great segments:  A presentation entitled “Can Alpha Be Captured by Risk Premia?” by Dr. Jennifer Bender, Vice President, MSCI and an expert panel discussing “ETF Trading Efficiencies and Inefficiencies.”  We also hear rumblings that one of our own research folks at ETFG may be starting up the Pittsburgh Chapter of QWAFAFEW.

We mentioned in yesterday’s note that the ETFG Dynamic Indices conducted their monthly rebalance yesterday and now head out into their 16^th month of existence.  ETFG currently publishes two Dynamic Indexes, the ETFG Quant Equity 10 (Symbol: ETFGQE10) and the ETFG Quant Equity 12 – The Golden Dozen (Symbol: ETFGQE12) - let’s take a closer look at the performance and composition of the ETFG Golden Dozen.

By way of background, the ETFG Golden Dozen is comprised of the top 12 equity ETFs as ranked by the ETF Global (Index Sponsor) Quant model that also meet the liquidity requirement.  The selection pool includes all U.S. listed, equity ETFs, excluding levered and inverse funds, as well as, those funds with average daily trading value of less than 5M USD. The ETFG Quant model assigns a daily ranking to all relevant products using proprietary algorithms and employing dozens of industry metrics to gauge how likely an equity ETF will outperform the market in the foreseeable future.  Selection is performed prior to trading on the third Friday of each month.  The portfolio is equally weighted and reconstitutes monthly on the second trading day following selection.

Here is the most recent performance of the ETFG Golden Dozen:  Since its inception in July of 2012, the ETFG Golden Dozen has returned 38.93% vs. 30.37% for ACWI and 29.10% for SPY.  For the last 12 months, the ETFG Golden Dozen has returned 24.40% vs. 18.69% for ACWI and 21.61% for SPY.  Finally, in the last 6 month period, the ETFG Golden Dozen has returned 18.45% vs. 10.85% for ACWI and 11.67% for SPY.

Congratulations to the ETFG Golden Dozen on its performance and for more detail, information and statistics on this Index and other ETFG Indices, please go to ETFG Indices.

ETF Global® Smart Beta

Today marks the monthly date for the rebalancing of the two ETF Global® Smart Beta Indices:  The ETFG Quant Equity 10 and the ETFG Quant Equity 12 (The Golden Dozen). 

The ETFG Quant Equity 10 (Symbol: ETFGQE10) is comprised of the top 10 equity ETFs as ranked by the ETF Global (Index Sponsor) Quant model.  The selection pool includes all U.S. listed, equity ETFs, excluding levered and inverse funds. The ETFG Quant model assigns a daily ranking to all relevant products using proprietary algorithms and employing dozens of industry metrics to gauge how likely an equity ETF will outperform the market in the foreseeable future.  Selection is performed prior to trading on the third Friday of each month.  The portfolio is equally weighted and reconstitutes monthly on the second trading day following selection.  Here are the components for the next month:

ETFG Quant Equity 10

AAIT

EIDO

EWN

FVL

FXI

PXE

SOCL

SOXX

SPY

XOP

The ETFG Golden Dozen (Symbol:ETFGQE12) is comprised of the top 12 equity ETFs as ranked by the ETF Global (Index Sponsor) Quant model that also meet the liquidity requirement.  The selection pool includes all U.S. listed, equity ETFs, excluding levered and inverse funds, as well as, those funds with average daily trading value of less than 5M USD. The ETFG Quant model assigns a daily ranking to all relevant products using proprietary algorithms and employing dozens of industry metrics to gauge how likely an equity ETF will outperform the market in the foreseeable future.  Selection is performed prior to trading on the third Friday of each month.  The portfolio is equally weighted and reconstitutes monthly on the second trading day following selection.  Here are the components for the next month:

The Golden Dozen

EIDO

EWH

EWN

EWY

FXI

IEO

QQQ

SOXX

SPY

TUR

XME

XOP

Tomorrow, we will look at the portfolio characteristics of these two portfolios as well as examine their respective performance statistics.  In the interim, for more detail, information and statistics on this Index and other ETFG Indices, please go to ETFG Indices.

Thank you for reading ETF Global Daily perspectives. 

ETFG Quant vs Reward Score:

We’ve talked about both the ETFG^sm Quant model and the Green Diamond Reward score, but everyone might not know the difference between the two models.  The ETFG^sm Quant is based off 4 broad categories of factors.   They are Behavioral, Fundamental, Global Theme, and Quality factors.  The Green Diamond Reward score is a subset of the Quant model.  The Reward score is just the Behavioral and Fundamental factors only.  It excludes the more macro Global Theme and Quality factors.  This leads to subtle differences between the top ETPs scored by the models.

Viewing the Quant model, the top two scored ETPs are XOP and PXE which are both Energy focused funds.  The top scored product (XOP) is SPDR’s Oil and Gas Exploration fund and the second highest scored product is Powershares smart beta Energy fund.

If you look at the funds based off their Green Diamond Reward score, the top fund iShares FTSE/Xinhua China 25 Index Fund (FXI) receives the high score of 10.  iShares MSCI AC Asia Information Tech  (AAIT) gets the second highest Reward score at 9.85.

You can see Quant’s slight favor for Energy over what the Green Diamond Reward score likes.  FXI and AAIT score 3^rd and 4^th on Quant’s list.  Depend on your objects and views, it’s always good to see what both models are favoring.

Happy Monday and thanks for reading ETFG Daily Perspectives

Inflation in the future?

It’s been an interesting week to say the least.  Many people are looking forward to closing this week and recharging over the weekend.  Today is a good day to review the ETFG^sm Quant model to see how the events this week may affect the market over the coming days and weeks.

Looking at the top 25 ETPs:

 - 12 are focused on North America

 - 6 on Asia-Pacific

 - 3 are Global

 - 3 on Europe

 - 1 on broad Emerging Markets.

  Over time we have seen Quant favor domestic over foreign and vice versa.  Today it seems pretty well split taking a broad view.  However, if you dig into the list a little you definitely notice a theme.  Most of the domestic products are focused on providing exposure to the energy or natural resources sector.  Is the ETFG^sm Quant model saying that it sees inflationary forces coming in the near future?  It kind of looks that way.  What it doesn’t say is if that is going to come from economic growth or through monetary policy.  Quant doesn’t try to explain why things are happening, it tries to highlight current and higher probability future trends based on factors that started in Academia and have progressed to being tested by the market.

We hope everyone has a great weekend and thank you for reading ETFG Daily Perspectives

Relative Comparisons

Now that the debt ceiling issues have been resolved, will the market get back to a somewhat normal state?  We sure hope so, at least until January when we catch back up with the can.

It's commonly said that the allocation within a portfolio is the major driver of returns.  They may very well be true but it's also important to pick the proper way to the various exposures to the allocation that you want.  With so many ETPs in the market place trying to do things a little different, you can get significant variation in performance depending on which on you pick.

We at ETFG^sm try to provide you will as many tools as possible to help you make these important decisions.  For example if you were interested in buying a product that is focused on the Financial sector,  you could go to the ETFG Scanner and search for products that focus on Financials compare them based on Risk, Reward, expenses and many other data points.

Those are all very important but you might be interested to see how an ETP has performed compared to a range of other products over different time frames.  We make viewing relative performance easy.  In this case we will use XLF as an example to continue our Financials theme.  If you go the Tearsheet for XLF, you will notice a number of tabs at the top.  Click on the "Performance" tab.  You will first be presented with historical returns and cumulative returns over a number of time frames.  Below those tables, we have created box plots that compares the historical returns to 3 different peer groups.  The groups are by Asset Class, Category, and Focus.  Here is an example of the focus (Financials) for XLF:

The Box Chart always you to easily see the High, Low, 25th percentile, 75th percentile, and median of the group.  In the table below it, you can see all the data along with how the product itself compares.  By the way, we exclude Levered and Inverse products from the group statistics so they do not get skewed.

As always, thank you for reading ETFG Daily Perspectives.