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A New Twists on Smart Beta

Smart beta is getting a lot of attention from the financial press and new products are coming to market daily. FastTrack is adding 20-30 a month. A great quote from the linked article speaks to the scale: “Investors handed $184 billion to smart beta ETFs from 2015 to 2017 while pulling $308 billion from equity mutual funds…”

What is smart beta? Essentially, a fund/ETF that tracks an alternative index vs a traditional market cap weighted index. The alternative index emphasizes capturing investment factors or market inefficiencies in a rules-based and transparent way. Some more popular alternative index factors are equal weight, momentum, volatility, P/E, and combinations of them all.

Typically these indexes are re-calculated monthly or quarterly, with the security investments doing the same.

FastTracker’s have been there from the beginning, one of the first products launched was SPLV – powershares low volatility S&P 500 ETF launched in 2011. (If you’re a long time FastTracker, this should sound pretty familiar. Think… Sharpe ratio momentum model.)

What makes the Vanguard funds different and worth mentioning? Essentially its the trading frequency. Instead of re-balancing or re-allocating once a quarter, these securities take a more active approach and trade holding daily if necessary. This way as factors change, the holdings update immediately vs waiting for the end of the quarter. Per Vanguard, this should give a more effective factor exposure.

We’ve added the new securities to our database and I’m interested in a comparative analysis vs what’s on the market now. A great exercise for FT Cloud+ users is running a daily rebalanced portfolio vs a monthly or even a yearly rebalance momentum model. You’ll see trading more frequently rarely adds to return. I’m interested in seeing if these deliver something different.

VFVA – U.S. Value Factor ETF
VFLQ – U.S. Liquidity Factor ETF
VFMO – U.S. Momentum Factor ETF
VFQY – U.S. Quality Factor ETF
VFMF – U.S. Multifactor ETF
VFMV – U.S. Minimum Volatility ETF
VFMFX – U.S. Multifactor Fund Admiral
VMNVX – Vanguard Global Min Volatility Admr

https://www.bloomberg.com/gadfly/articles/2018-03-09/vanguard-crushed-active-investing-now-it-could-save-it

Data Quality – Screening Funds and ETFs

Here’s a great illustration of why you need dividend adjustments when analyzing funds and ETFs. QLENX (a lower risk AQR managed long short fund) has been popular with FastTrackers for a few years and it would be totally off your radar if you’re using Yahoo, CNBC, Fidelity, or any number of other free data outfits for charting and ranking.

Only FastTrack is adjusting for the 12/19/2017 dividends. Adjusting for dividends, a simple UPI ranking puts QLENX on top for the past three years. Without adjustments, QLENX’s risk/ return profile is misrepresented and pushed to #644 in the rank.

The black FastTrack chart illustrates the difference pretty clearly. The large dip towards the end of 2017 is the div payout of QLENX. The NAV drops, share price is reduced, but without accounting for the div payout you’ll get incorrect charting and ranking.

This is what FastTrack is known for. We’ve been providing this high quality, dividend adjusted data to professionals and individuals for over 27 years. Download a trial or give us a call.

QLENX in Red; SPY in green; Yahoo’s QLENX data in yellow; Three year chart; Feb 2015- Feb 2018
FastTrack’s dividend adjusted data shows the proper ranking.
Totally bogus ranking when data is not corrected for dividend payouts
 
No Divs – Incorrect chart from Finace.Yahoo.com
No Divs – Incorrect chart from CNBC.com
 
No Divs – Incorrect chart from Fidelity.com

How to invest in Artificial Intelligence

artificial intelligence

There’s lots of buzz surrounding AI (artificial intelligence). It’s changing the world as we know it and also is showing strong out performance over the past year. Here’s a list of AI related names in the FastTrack database.

The charts below shows the relative strength chart vs SPY of the two most popular ETFs, BOTZ and HACK. BOTZ is showing nice strength vs SPY while HACK is mixed to losing steam. Do AI names have more room to run or have they given us all they’ve got?  Love to hear your comments.

BOTZ - Global Robotics & Artificial Intelligence ETF
BOTZ vs SPY – 1 year Relative Strength (Feb 2017 to Feb 2018)
HACK - Pure ETF ISE Cyber Security
HACK vs SPY – 1 year Relative Strength (Feb 2017 to Feb 2018)

Artificial Intelligence
AIEQ – AI Powered Equity ETF
ARKQ – ARK Industrial Innovation ETF
BOTZ – Global Robotics & Artfcl Int’llgnc ETF
HACK – Pure ETF ISE Cyber Security
ROBO – ExTrd Concepts Robo Glbl Robotics&Autmtn
SOCL – Global X Mgnt ETF Social Media
TCHF – iShares ETF Edge MSCI Multifactor Techn
XT – iShares ETF Exponential Technologies
DTEC – ALPS Disruptive Technologies ETF *
ROBT – First Trust Nasdaq Artificial Intelligence and Robotics ETF *
BUZ – BUZZ US Sentiment Leaders ETF *

* Well be added to FastTrack database by end of February 2018

Charting Bitcoin with FastTrack

Bitcoin graphic fasttrack

Bitcoin is back on the front page, breaking above above the $10k mark again last week. While its a speculative asset class and typically not something a FastTracker would devote much capital, we have been getting a good number of calls about Bitcoin, Blockchain, and related tech.

What do we think, worth a gamble?

He’re a quick list below of most popular/ asked about ETFs, Funds, and stocks. Look out for the bitcoin family coming soon.

Bitcoin/ Cryptocurrency/ Blockchain
GBTC – Bitcoin Investment Trust
ARKW – ARK Web x.0 ETF
ARKK – ARK Innovation ETF
BLOK – Amplify Transformational Data S ETF
BLCN – Reality Shares ETF Nasdaq NextGen E
KOIN – Innovation Shares NextGen Protocol ETF
LEGR – First Trust Indxx Invtv Tnsctn&Prcs ETF
KOIN – Innovation Shares NextGen Protocol ETF

Stocks
LBCC – Long Blockchain Corp
OSTK – Overstock
RIOT – Riot Blockchain
KODK – Eastman Kodak Co
MGI – MoneyGram International
NVDA – Nvidia

New Families – Smart Beta

smart beta cube

Its hard to open a newspaper (or news app) these days and not see something about “smart beta,” “liquid alternative,” “strategic beta,” etc etc. There’s hot… Red hot right now. As such, we’ve created a FT Cloud family grouping for these funds. (see the instructions below to find the new family)

So, what is a smart beta ETF? Generally, its an ETF that weights its holdings by something other than market capitalization. They’re generally marketed as a hybrid between passive investing and active investing.

For example, RSP – Guggenheim S&P 500 Equal Weight ETF hold all companies in the S&P 500, but instead of market weighting the assets, RSP hold equal weights of all 500 assets.

Another good example is MTUM – iShares MSCI USA Momentum Factor ETF. It operates largely like the FT Cloud momentum model. The ETF holds approx 100-150 large and/or midcap stocks that have shown the highest 6 and 12 month total returns, then it market capitalization weights those funds for its final holdings. Its rebalances the holdings approximately once a quarter.

The smart beta segment is already big and its growing. According to FactSet there’s approx 450 strategic/smart beta ETFs currently in the market and there’s approx $450 billion invested. That’s up from 213 funds managing $132.5 billion in assets in 2009. FastTrack’s got 480 ETF (and some funds) that qualify as “smart beta” per our analysis. So, enjoy. Let us know what you think.

How to see the Smart Beta Family in FT Cloud:

First, sign into FT Cloud (sign up for a free trial here), click the FT Cloud tab, then press the “Load Family” button in the upper right corner.

smart beta load family

Next, expand the top tree level “Funds,” navigate to the bottom tree called “Smart Beta” and expand. Double click the families to load on the the right hand grid (press the load button to add to the spreadsheet)

smartbeta family selection

Also, to mix and match families, try using the sieve feature!