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Mon, Feb 9, 2015

Expense ratio: 0.33%. A bit on the high side for what it is.

Whatnot’s: Global stocks.

ACWI is an ETF that contains the world’s largest equities. It’s essentially a must have. Or if you don’t have this, you’ll probably have a US broad market ETF and an ex-US and enjoy worrying about how you should split them. In case you don’t, the question is a simple one. iShares’ ACWI or Vanguard’s VT? VT has 6943 holdings while ACWI has 1275. VT has an MER of 0.18%, while ACWI has 0.33%. VT has distributions every quarter year, while ACWI is a June and December affair. And both have a similar percentage allocation for each country, half US, half ex-US.

Yet somehow they’re both at around $6.5 billion AUM. Why is that then? Well, probably because they both started in the first half of 2008. And iShares’ marketing seems to make up the difference. The five-year performance difference is 1.75%, distributions excluded, which have been slightly lower for ACWI over the past year. The average of both of them is about 2.3%.

In any case, one needs to note that these past five years have been a strong bull market. A bear market in which smaller cap equities don’t do as well, ACWI may well equal if not claw back the lead.

Long story short, pick the Vanguard? Well, up to you. I, at least, am in VEU and VTI. And am in the ASX-listed currency hedged total market VGAD and am considering replacing the former two with the also total market VGS. Which has far fewer holdings, like ACWI, has a higher MER, like ACWI, but is simpler to manage tax-wise.

Long story short, pick the Vanguard? I answer that question with another question - do you have a coin for a coin flip?

SuperDividend U.S. ETF (DIV)

Sun, Feb 8, 2015

Expense ratio: 0.45%. Should tell you who will profit.

Whatnot’s: Highest dividends.

I don’t mind Global X. In fact, I’ve got an eye on one of their ETFs that’s looking pretty damn tasty in terms of diversification. DIV ain’t one of them. But kudos on them for getting that ticker symbol. For something with this broad a theoretical appeal, DIV falls pretty short with only about $300 million in AUM. So what is it?

DIV takes some of the highest dividend payers in US equities. But an S&P beta 0.66 reveals that on the surface at least, DIV smells a bit different. Taking the next step, however, and looking at the price-to-earning as listed on their site, 2014 had a ratio of 17.34. 2015 dropped to 16.69. This is despite the backdrop of a bull market that is still growing it’s P/E.

And that is, frankly, pretty interesting. I like low P/E stocks, in theory at least. But only if that’s sustainable. Well, DIV seems to try to cover that aspect with a sector cap of 25%. Close to hitting that cap are Utilities, Energy and REITs. Second biggest asset? Altria. No, wait a minute… all of this data is straight from DIV’s page and contradicts some other data straight on there… let me have a look. … Ah, I see it now. Energy used to be more than 20% in September, but dropped to 6% by December, against the backdrop of dropping energy prices. And that’s a pretty big churn for something that’s meant to be spitting about a solid income.

And maybe that low beta just means you’re missing out on that tempting sweet bull market return. DIV has been flat through 2013, flat through last half of 2014. P/E is down, sure, but if you’re just going to churn through those stocks where is that reward coming from? More mainstream, VYM has much better return and 0.10% MER. So does VIG. And also, low beta, but also low downside risk? Don’t think so, with REITs being so heavily weighted.

At least you get a neat American flag motif on their minisite .


You can look abroad for high dividends. Ex-US tends to pay much higher dividends and across more of the sector. SPDR has two global high dividend funds, WDIV (I have a bit of that fund’s ASX listing) and DWX. Try Australia and/or New Zealand! Or try Global X’s own SDIV, three times bigger than DIV.

Being in Australia one is pretty spoilt, you know. At least in some ways. While the biggest bank is more than 10% of the top 300 - and another three not much smaller than it at least we get by default a sweet 4 to 5% dividend yield. Plus dividend imputation with franking credits and all shoving that up to potentially 6 to 7%. If you’re a pauper, that is. For, again, a general top 300 ETF. Point being, if you really like DIV but want something a bit more garden of Eden general all around paradiseness … you might want to consider moving to Australia. Just sayin’. And with our currency dropping like a … wallaby hit by a car? … it might be pretty nice to move a pile of money here too before too long. Even if you don’t move.

DIV, from my perspective? Not really, mate.

iPath Bloomberg Coffee Subindex Total Return SM Index ETN (JO)

Sat, Feb 7, 2015

Expense ratio: 0.75%. Average for soft commodities.

Whatnot’s: Coffee.

JO is the biggest soft commodity ETF, with assets somewhere just south of a hundred million, continuing to decrease. At these annualised losses one can be sure that their cup of local Starbucks won’t have its price inflated by any shortage of coffee. And what’s left is essentially a sliver of hope that the cycles in coffee production remain predictable enough that one can get something out of this. Probably not, though. Try again, Buster.

Aptly named (JO), any long term holding of JO begs the question of whether one really thinks that coffee is going to keep going up. And the answer to that, as with all commodities, is in my fundamental opinion a no. Commodities are, in the long run, always going to head down. What is JO for then? An ETN for people who don’t want to trade in futures? Most likely.

So, in short, would I invest in it? No. Should you? Up to you. But would I invest in a certain kind of commodities ETN? Sure. And for that reason, it’s not too bad for that ETN to exist. More on that in the future.

Barron's 400 ETF (BFOR)

Fri, Feb 6, 2015

Expense ratio: 0.65%. Ba-dum tssss.

Whatnot’s: Baby’s first I-can-pick-stocks.

What was it again? RSP? Yeah, RSP. Let’s have a look and compare. Yeah, for both BFOR and RSP I’m picturing some gentleman with some proficiency and some basic familiarity being introduced to cap-weighted ETFs for the first time. And completely missing the point. But he does hear the line about ETFs having lower fees and so he’s convinced that it’s for him. Because by golly he always bought himself $4k of this stock, $4k of another stock all the way up to 10 stocks with wildly different market caps and that’s how god created the Earth and it was good. When you have an equal-weight ETF you’re kind of rewarding failure, you’re really doing something a bit suboptimal (never mind what their marketing materials say). It’s not wrong wrong, but it’s wrong in the same way that you don’t brush your teeth upside down. It works, but at some point you’re going to throw up toothpaste.

Except that the religious fanatic with no open mind is never going to swallow on that toothpaste, but to the hardened average ETFite even a 0.01% difference to SPY is a validation that the equal weighters are Zoroastrian heathens who must be banished from the lands. Never mind if that was an outperformance, they’re all a bunch of freaks.

Now, with that elephant out of the room, let’s go pick up the pieces of what’s left and set them on fire. Where’s the fire, you might ask? Well…

Barron’s has a page on Market Grader that lists the past performance of the index. And it’s mighty impressive, the since 2000 view. Click on ‘10 Years’ and since 2005 the return has been essentially same as NASDAQ. Still better than Dow Jones or S&P500. 5 years and Barron’s falls, 3 years even more so, 1 year performance? It’s the worst.

The index uses a strategy that’s performed well in the past but seems to be getting worse over time. And we’ve had bull and bear markets in the meantime. One simple explanation that explains why Barron’s 400 has been doing worse since about 2007 or somewhat before that than NASDAQ? Well, it didn’t exist before 2007. That’s right. The performance before 2007 is all made up with the benefit of 20 ⁄20 hindsight. Sure, the strategy is quite possibly the same, but it looks to be a dud over the S&P 500.

And when you’re apparently getting fewer dividends out of the thing due to the selection (I like dividends, so sue me) and paying about .6% MER more than a total stock market ETF, the question is very simple.

Why bother? I can’t answer that.

To quote the marketing:

It’s up more than 200% against other leading indicators since inception

Easy if half of that time is before the index’s actual inception date and you have a strategy that worked well with the benefit of hindsight. Since then? Not so much.

International Multi-Asset Diversified Income Index Fund (YDIV)

Thu, Feb 5, 2015

Expense ratio: 0.71%. About average for that class.

Whatnot’s: International grab bag of big giant meh-ness.

The multi-assets defy categorisation. They’re all a bit different, all a bit unique, all a bit opinionated. None of them have more than a billion in assets, and only one has more than $500 million.

The most concise way of describing them is to probably just call them a grab-bag, a sammelsurium of random whatnots that a long term investor is not going to get by buying the three typical Vanguard funds. And First Trust seems as good as any a place to stock up on multi-assets, leading the market with MDIV. MDIV is, in fact, the US equivalent of YDIV, which is ex-US only. Now, whatever the hell are YDIV and MDIV for?

What First Trust wants you to do is pretty obvious, and it’s pretty appealing at first glance. The general lazy portfolio idea is pretty simple. You combine 4 pieces VTI, 3 pieces VEU (or VXUS/VEA) and three pieces of BND and let that fester for the next 50 years until you uncork that bottle. That’s my intepretation of what Bogle told me, anyway. But you’re always going to have that nagging thought in your back. What about REIT? You need 5% in emerging markets. How do preferred securities make you feel? And don’t you want these high dividends?

MDIV and YDIV are a one stop shop for that. No, wait. Let’s count that. One. Two. Two stop shop. With the international one having a hefty 0.71% MER. 20% REIT, 25% dividend equities, 20% preferred securities, 15% fixed income, 20% infrastructure. There’s a pile of trouble with that.

  • Preferred securities aren’t all that popular overseas. Which means that about two thirds of the lot is either in Canada or is a British bank.
  • More than half the REITs are in Australia or Singapore. Let’s just say that growth potential in both places in real estate is a bit limited. Tokyo apparently costs less than half per square metre than Sydney.
  • Infrastructure is more than half Australia and British.
  • Emerging markets bonds and the currency fluctations in those. The the exclusion of other international bonds.
  • And a grab bag of international dividends,

    apparently weighted by something like the dividend yield divided by something close to the number 10. Which is really hilarious in this day with the top securities being oil trusts. Hey look, it’s CBA, appearing in high dividend lists everywhere. How you doin’?

All in all it’s diversification, but man is it depressing. For dozens of basis points worth of savings or whatnot why not go out and buy yourself a bunch of Vanguards? Branch out past whatever speaks English and go for some actual grab bag of fun, one that you’ve assembled yourself. One that you’ve assembled yourself like a Magic: The Gathering deck? And who doesn’t love themselves some MTG?

EMB, WDIV (I have some of that, it’s been nice… more distribution next time kthx), PFF (includes a bit of overseas preferred stock). Yeah, infrastructure lives somewhere among these. REIT is already implicitly in enough crap. If you look into the details of YDIV, you’ll find quite a bit more than just 20% REIT. Despite only being three ETFs, it seems to fulfill what is apparently a multi-asset mission better than YDIV. That is, of course, if one subscribes to the theory that multi-asset just means securities and bonds again, but apparently not weighted by market cap, but by allotment of parcels of land by a somewhat arcane method, which is about all I can see YDIV is doing. Smells kind of like this whole crazy electoral votes thing you seppos have going on in the US every election.

Sure, you’re going to spend a bit extra on brokerage, but it’s just soooooo much less depressing than the First Trust alternative. And at only $14 million in market cap, it seems that few would disagree. At least it pulled itself off the ETF Deathwatch list in August 2014, so there’s that. Still, what is YDIV’s use. Frankly, beats me.

Materials Select Sector SPDR (XLB)

Wed, Feb 4, 2015

Expense ratio: 0.15%. It’s SPDR, what do you think?

Whatnot’s: DuPont, Dow and Monsanto.

XLB is top heavy. The first three are a third, the top ten holdings are two thirds. Vanguard’s alternative VAW is about 20 ⁄50 and has a lower management fee. But I guess if you’re wanting to be a professional arachnologist and collect all of them for further study, knock yourself out.

Here’s the thing about those sector-specific ETFs. Or an example. Materials is the smallest of the 9 S&P sectors. It makes up about 4% of the total. So when you have a sector-specific allocation, you just take some point on a scale between the actual allocation of the sector and what the average allocation is. That’s it. You want aggressive? You take sectors that are over-represented and increase their overrepresentation. You want conservative? Make them all 11%, or better yet, go the other way even. Don’t believe me? That’s near enough what SPDR’s Portfolio Builder does. Vanguard can’t even be bothered putting up a thing. They just have the ETFs because people with too much time on their hands will buy them.

Now, does any of this work? It might, sure, especially with +1 20 ⁄20 hindsight. But does it grant magic powers above the standard market return? Probably only in as much as one might decide to be conservative or aggressive, in which case growth vs. value puts one just about in the same place. At least they are less ambiguous than the sectors. There’s a dropping of lower margin materials from all the big players in this ETF. Why would they want to make Nylon or whatnot when they could become technology businesses? And soon even Monsanto becomes more of a technology quite bioengineering concern than an agricultural one. Much more subjected to cycles. But with a higher profit margin.

And here’s another word for the conservatives: EQL. Why not? The management fees are higher but there’s no rebalancing and less brokerage to pay. But, and here’s something strange, even if you go down that conservative allocation, you’re still ending up in the same place as SPY .

Why invest overweight in this sector at all? You’re here because of graphene, right? Graphene is fundamentally about manufacturing. And the US ain’t much about manufacturing. Materials science is about putting things together and that expertise is fundamentally more in China than the US in this day. The feedback loop between manufacturing and construction is a great deal shorter in China. Feeding people? That honour might as well go to India and its inherent crop expertise. Basic plastics and performance plastics make up more than half of Dow Chemical. DuPont is still greatly about Kevlar and Teflon. And Monsanto is so much about GMOs.

And those negatives for being out-competed by a simple lower profit margin… they could very well all be positives. All of these are fundamental in our future, but also in a way China cannot provide. Between materials for 3D printing in every household (or rather, near every household), genetic engineering and a glimpse of the future of American manufacturing with the likes of … Tesla … things may be exciting again in the first time in decades. And American businesses might do better in marketing to China than anyone else. Teflon did it. And if nothing else Monsanto’s purchase of Climate Corp shows they really like sensibly new business models.

But will this possible future not be in lockstep with the S&P 500? Nah. The likes of Microsoft will be right there too.

Yet the CEO of Monsanto has the name Hugh Grant. Frankly, collating these facts and making decisions based on them strikes me as not even remotely as bad as some other investing ideas out there.

Short Dow30 (DOG)

Tue, Feb 3, 2015

Expense ratio: 0.95%. Average for what it is, you maniac.

Whatnot’s: Shorting the largest caps.

DOG is not an ETF that, despite its name, tracks the Dogs of the Dow theory, leaving that to SDOG and whatnots. It is, however, an ETF whose very existence poses some questions. Launched, conveniently for those at the time, in June 2006 it started at $69.67, dropped to $56.14, rose to $86.67 in late 2008 and is now trading in the twenties. The biggest trading days in its history came during a temporary slum in October 2014. Go figure.

In general if you were planning to hold on to this for any amount of time you’d be mad as a hatter, two birds short of a cuckoo clock. Yet somehow it attracted $230 million of day traders seeking to capitalise at any drop in the large caps. No, wait. This is all wrong. It’s not actually a drop in the market cap, but a drop weighted by the price of the individual shares. The DJIA is price-weighted, you see. Between this, the almost 1% expense ratio (and the brokerage you’ll pay) and the fact that you won’t hold on to this for more than a few hours at best, it all smells a bit blurgh.

And there’s another problem with DOG. It’s even bad at the job it’s meant to do. There’s about two dozen inverse equity ETFs above $100 million. The leveraged ones have lost a hilarious 98% or so over the past 5 years, fair enough. And then there’s the non-leveraged ones, but none of them have actually recorded losses greater than DOG. It might be the makeup of the DJIA vs. the S&P 500, but if you’re choosing to go decidedly short for the day you probably couldn’t even choose worse than DOG.

Shorting large caps, inherently putting a bias towards the mid or small cap, is also something that I, being in Australia where about half the entire stock market is in the top 10 and small caps have been dawdling through the past few bull years, would consider quite mad.

DOG is probably the right ETF for the kind of person standing at the top of the building, thinking about whether they should jump or not, with a bungee rope attached or not, depending on which way the market will ultimately go that day. DOG doesn’t really shorten the rope or actually makes it safer, it looks more like it’s some sleeping pills to make the whole experience a bit less exciting. Until the small caps start inevitably having a bad time in the bear market.

In an environment that’s generally always ticking up, if you’re going to short and expect to get much out of it, you’ll probably want to leverage it. Again, if you’re going to bother. SH and SDS, short and ultra-short the S&P500 are .90%.

Oh, and the volume it traded on the peak day in that October? Apparently more than a third of the total number of shares out there. SH? About a third. SDS? About 70%. Sounds like the leveraged ones are braver to the exact degree of leverage.

Or you can play it “safe”, for some pretty ambiguously strange definition of “safe”.

PowerShares Fundamental High Yield Corporate Bond Portfolio (PHB)

Mon, Feb 2, 2015

Expense ratio: 0.50%. So-so.

Whatnot’s: High end junk

A simple Google will confirm to us that our memory is not mistaken. Scott Adams put that TLA into the popular vernacular and it has persisted ever since. PHB is the pointy-haired boss from Dilbert and that’s what that acronym will always be.

Anything I don’t understand must be easy. says the Pajero driving maniac.

Apparently we’re at 9.75% yet with a rating of B for the highest-yield bond in the ETF, that’s Enova International. Here in Australia an Enova loan for $2k has an Establishment Fee of $400 and an interest rate of 48% per year. I guess there’s money to be made in assuming that the average payday loan people will go under every two years, plus a profit margin. The lowest yielding bond in the portfolio? In a case of poetic symmetry, it’s ADT. The largest security company in the US, with a 25% residential market share. Started in, of course, Boca Raton, Florida. If one is looking for diversification it’s certainly present, and telling a tale of MURICA, ranging from the downmarket scrape together a few dollars to the fenced estate retirees at the exact other end.

Halfway positioned between JNK and LQD, Pointy-haired boss occupies about the same space as HYG. High yield corporate bonds, but to the exclusion of the downmarket crap. Or is it really? Does Enova really count at the rating it’s been given in a high default environment of 2008 or 2009? Or is it just a case of generic feelgoodery. HYG’s return has been an annualised one percent higher than PHB. At many times the size the liquidity is so much better than PHB’s. And at the same expense ratio, it’s starting to become a no-brainer.

HYG seems to go for more down-market junk than PHB, yet somehow it’s missing Enova. And that’s refreshingly less depressing. The highest yield in that? First Data, showing up near the top yields of bond ETFs everywhere. CCC+? Smell the excitement. Is the extra percent worth it despite the slightly higher risk during horrible times? Sure. Because a Caa2 beverage packaging bond in that ETF that’s based in New Zealand (actually Luxembourg or the US, depending on the time of day) and pays 5.63% is one I don’t mind having all that much. Especially with everyone from Chinese mother buying drinkable Kiwi products out the wazoo to conspiracy nerds stocking up on canned corn. Anyway, even if Enova apparently pays 9.whatnot percent. Ugh. I’m fine with 10% CCC-grade in a junk bond, and so should you be. Better than a 48% payday lender, whichever end you’re on with that.

Sure, the default rates are going to be lower in theory with PHB. And if you think the second economic apocalypse is going to come soon, go with PHB over HYG. But if you’re not, even then PBH isn’t all that bad.

Category: Payday loans

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