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Strategy

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!

 

Sieve Practical Example

layer

In this post, I’ll walk through a typical use case of a fund sieve.

Investors Question: “I have a Fidelity retirement account. Where do I start?”

For this really simple example, we’re going to load all the funds in the Fidelity family. Then remove all funds that are not in the Giant family. Then we’ll remove all funds that have a front end load.

 

  1. First, sign in to FT Cloud, open the spreadsheet tab (labeled “FT Cloud”), and click the “Load Family button in the upper right.FT Cloud Sieve
  2. Next, we’re going to load the Fidelity family (Funds>>Company>>All>>Manage Large Number of Funds >> Fidelity)FT Cloud Sieve
  3. This next step is the important part. The Fidelity family has 913 funds. We want to pare this down to a more manageable, actually invest-able list. To start, we’re going to press the “and” button with the “FundSize-Giant” selected. This will keep only the Fidelity funds that overlap with the Giant funds family (ie… remove all tiny funds, super specific funds, etc).FT Cloud Sieve
  4. Next, we’ll whittle a little more and remove all funds in the “Loads-Front” family by pressing the “Remove-” button with “Loads-Front” selected.
  5. Press the load button in the lower right to load the final 197 funds.

So, to summarize. We used the sieve to remove a variety of “unwanted” funds. We started with the 913 Fidelity family, then we worked our way down to the 197 funds that make the most sense for the fund scan/sieve.

 

 

Why Do Dividends Adjustments Matter?

FastTrack has been the premier provider of quality dividend adjusted ETF, fund, and stock data for many years. Serious investors know why dividends are critical. But, here’s a quick crash course in a few charts.

The 10 year chart below demonstrates the difference between dividend adjusted return vs non dividend adjusted return for VUSTX (Vanguard INV:Long-Term US Treasury).

This fund is one of the top five US funds in total assets (thus very popular and not picked to exaggerate the example)

vustx Div Comparison

The blue line represents VUSTX with no dividend adjustment and the gold line represents VUSTX with dividend adjustments. The blue line shows a return of 23.98%, when in reality the fund
returned 130.74%. That’s a whopping 106.76% difference in return!

Without accurate dividends, it is impossible to build the long-term, low volatility, low trading strategies that FastTrack is known for.

Another example is FMAGX (Fidelity Magellan), a very famous aggressive equity fund, since 9/1/1988 (the first date in the FastTrack database).

FMAGX div comparison

Again, we can see that dividends are essential to analyzing mutual funds accurately. Over the 23 year period, FMAGX appears to have posted a 38.45% gain without dividends, while accounting for dividends shows an accurate 550.92% gain over the period. Any analysis that does not account for distributions is not portraying the funds real total return. Dividend adjustment is essential for long term analysis.

In summary, FastTrack realizes the importance dividends make when assessing true total return
in investing strategies and in developing long-term trading systems. For the past 25 years the company’s mission has been to provide prompt, accurate, and comprehensive dividend adjustments. Getting an accurate view of a fund’s performance is essential to fund and ETF analysis.