Tag Archives: green

Global Macro – Generate Superior Returns With Less Risk

Summary Global macro not only generates higher returns but does it with far lower risk than equities. Long-only equities have been profitable, but has had some very long and deep periods of negative returns. Not only are stocks usually in a drawdown, but over the past 20+ years, we have had two massive drawdowns that took years to make up. We at The Macro Trader are obviously fans of Global Macro as an investment strategy and even philosophy. Fortunately, the data backs us up showing that global macro not only generates higher returns but does it with far lower risk than equities. The chart below shows how you would have done if you had invested $1,000 into the Credit Suisse Macro Hedge Fund Index, SP500, and Barclays Aggregate Bond Index since 1994. As you can see, the CS Macro Hedge Fund Index did drastically better than either stocks or bonds. To be more specific, the CS Macro Index beat the SP500 by 2.11 times and the AGG Index by 2.75 times. So, that shows the returns, but what about the risk taken to achieve these returns? (click to enlarge) Global Macro vs SP500 vs Lehman AGG Bond Index We have a few different charts to display the risks taken to generate the returns in each index. First, we will show the historical drawdown charts. A drawdown is simply anytime you are not at new highs in your account. If you have $100 and lose $5 you are in a -5% drawdown. The deeper the drawdown the higher the return needed to get back to breakeven and the math, while simple, can be tricky. For instance, if you lose -50% many think you need to make 50% to get to breakeven. The reality is that you need 100% to get to breakeven. In our case of being down -5%, you only need a 5.26% return to get to breakeven, but it gets harder the deeper you get. Looking at a drawdown chart of the SP500, you can see that not only are stocks usually in a drawdown, but over the past 20+ years, we have had two massive drawdowns that took years to make up. We know them as the dotcom crash and the GFC (Global Financial Crisis). It took the SP500 57 months to recover from the dotcom crash and 50 months to recover from the GFC. (click to enlarge) SP500 – Drawdowns At the opposite end of the spectrum, we have the drawdowns of the Barclays AGG Fixed Income Index. As you can see, the AGG Index has frequent but small drawdowns with the worst one barely dropping below -5%. It only took nine months for the AGG index to fully recover from the worst drawdown and three months to recover from the second deepest drawdown. (click to enlarge) Lehman/Barclays AGG Fixed Income Index Drawdowns Finally we have the CS Global Macro Index drawdowns. As you can see, its worst drawdown was a -26.79% and its second worst was -14.94%. It took 19 months to recover from the -26% drawdown and 19 months to recover from the -14.94% drawdown. (click to enlarge) Credit Suisse Global Macro Index Drawdowns Another way to show the depth and length of the drawdowns is to plot both the equity line as well as the new-highs line. In each of the next three charts, the green line equals the highest equity line got; notice that it never dips down, and the red line is the equity curve which goes both up and down. Here is the SP500. As you can see, while it hit a new high in 2007, it then went back down. In essence it took about 12 years before investors were really making new money. While this is a worse-than-“normal” period, it is also not the first or the second time that the stock market has had a rough decade. (click to enlarge) SP500 DD and NH Looking at the AGG Fixed Income Index, we see that the drawdowns are both shallow and short. If you were in the AGG Index, you would not make the most money but you also took very little risk. (click to enlarge) Lehman-Barclays AGG Fixed Income Index DD and NH Finally, we have the CS Global Macro Index. As you can see, the drawdowns, while larger than that of the AGG index, are far smaller than the SP500 index. It kind of takes the middle route in regards to risk but it drastically outperforms both in regards to return. (click to enlarge) Credit Suisse Global Macro Index DD and NH Another way to look at the risk and return is to look at the 12-Month Rolling Returns. At any point in the chart, you are looking at the returns you would have gotten if you had invested 12-Months ago. As you can see, the SP500-red line has the highest 12-Month returns, but also the lowest 12-Month returns. The AGG Index (green line) almost always shows positive returns, but it never has a really big year. Finally, the CS Macro Index (blue line) again comes somewhere in the middle. It is positive almost as often as the bond index but the 12-Month period to 12-Month period returns are less than stocks. (click to enlarge) Global Macro-SP500-AGG 12-Month Rolling Returns Basically global macro has lower volatility and more consistent returns than the stock market and almost as consistent returns and far more gains than the bond market. The main reason that this is possible is that as opposed to either the stock or bond index a global macro fund can go long and short anything and trade derivatives on anything. Most macro managers stick to liquid instruments but that still means you have hundreds if not thousands of tradeable instruments. The flexibility inherent in global macro allows you to always find a bull market somewhere whether that is being long stocks, short stocks, long the Australian Dollar, or short the Australian Dollar. You can bet on U.S. Treasuries against German Bunds or across almost any other market relationship you can think of. Not only is global macro flexible but macro managers are famous for stringent risk management practices. It is almost cliche, but in the end risk management is one of the keys to success in any trading approach and one of the most important things that separate macro from long-only buy and hold. What about claims in the press that “hedge funds have underperformed the SP500 since the GFC?” Well that is true but if you are picking only half a cycle, then it is probably not a fair comparison. In the chart below, you can see what happened to the CS Macro Index and the SP500 from the end of 2008 until the end of August 2015. As you can see the stock market is ahead. (click to enlarge) 2009-Now Of course that was just in a bull move when everything was headed up. If instead of the end of 2008 or the end of February 2009 we use 2007 as our starting point we get a drastically different result. In this case the flexibility and risk reduction inherent in the global macro approach shines as the CS Macro Index outperforms the SP500 with both higher returns and far lower risk. (click to enlarge) 2007-Now As far back as we have data global macro has outperformed both stocks and bonds across full market cycle. On the other hand, long-only equities have been profitable, but has had some very long and deep periods of negative returns. We are obviously biased towards global macro. We have a site and run a research service dedicated to it. You could say we drank the kool-aid and live and breathe this stuff. At the same time, however, many of the most successful money managers in history have been macro managers and the data shows that when done right, it can lead to both higher absolute and risk-adjusted returns. So, while we are indeed biased, we think that the case is fairly strong in our favor.

ETF Deathwatch For September 2015: 13 Members Recently Died

Seventeen new names joined ETF Deathwatch this month, but the overall membership roll dropped by five as 13 members died and nine left due to improved health. The current count stands at 325 (233 ETFs and 92 ETNs). The number of actively-managed funds on the list declined from 41 to 39. All newly-launched products are granted an exclusion from ETF Deathwatch for the first six months of their life. This gives them an opportunity to attract investor interest either in the form of sufficient assets to achieve profitability or enough trading activity to spur asset growth in future months. For September, the 149 new products launched between March 1 and August 31 are excluded. This leaves 1,619 eligible ETFs and ETNs. From a percentage viewpoint, ETFs have lower representation on Deathwatch than ETNs. Within the ETF classification, passively-managed funds are currently faring better than actively-managed ones. The overall ETF representation comes in at 16.3% of the eligible funds, with 14.8% of the 1,307 eligible passively-managed funds and 32.0% of the 122 eligible actively managed ETFs on the list. Even though the quantity of listed ETNs has shrunk by more than 10% this year, nearly half of their remaining population is on Deathwatch. For September, 48.4% of the 190 eligible ETNs are on the list. Day traders have been migrating from 2X to 3X leveraged ETFs to get the biggest bang for their buck. As a result, 2X funds are falling out of favor, and four more of them were added to ETF Deathwatch this month. Six of the other September additions are from sponsors with little or no name recognition among retail ETF investors. ETFs from Arrow, EGShares, GreenHaven, KraneShares, Lattice, and Sit are new members. BlackRock closed 18 of its iShares ETFs in August. Twelve of these closed ETFs make up the bulk of the ETFs that came off of Deathwatch this month. Perhaps what is more interesting is the fact that six of the iShares ETF closures were not on Deathwatch. For example, iShares FTSE China (NASDAQ: FCHI ) had more than $37 million in assets and iShares MSCI Emerging Markets Eastern Europe (NYSEARCA: ESR ) had nearly $31 million, keeping them both off the list. The current criteria for ETF Deathwatch states that funds with more than $25 million in assets are automatically removed from the list. So far this year, eleven products with more than $25 million in assets have closed. It may be time to raise that threshold. The average asset level of products on ETF Deathwatch held steady at $6.8 million, and the quantity of products with less than $2 million also remained constant at 62. The average age increased from 49.7 to 50.1 months, and the number of products more than five years old was unchanged at 110. Here is the Complete List of 325 Products on ETF Deathwatch for September 2015 compiled using the objective ETF Deathwatch Criteria. The 17 ETPs added to ETF Deathwatch for September: Arrow QVM Equity Factor (NYSEARCA: QVM ) Direxion Daily Basic Materials Bull 3x (NYSEARCA: MATL ) EGShares Brazil Infrastructure (NYSEARCA: BRXX ) ETRACS CMCI Silver TR ETN (NYSEARCA: USV ) GreenHaven Coal Fund (NYSEARCA: TONS ) Guggenheim S&P High Income Infrastructure (NYSEARCA: GHII ) iPath US Treasury Flattener ETN (NASDAQ: FLAT ) KraneShares FTSE Emerging Markets Plus (BATS: KEMP ) Lattice Emerging Markets Strategy (NYSEARCA: ROAM ) ProShares Russell 2000 Dividend Growers (NYSEARCA: SMDV ) ProShares S&P MidCap 400 Dividend Aristocrats (NYSEARCA: REGL ) ProShares Ultra Gold Miners (NYSEARCA: GDXX ) ProShares Ultra Junior Miners (NYSEARCA: GDJJ ) ProShares UltraShort Gold Miners (NYSEARCA: GDXS ) ProShares UltraShort Junior Miners (NYSEARCA: GDJS ) RevenueShares Global Growth Fund (NYSEARCA: RGRO ) Sit Rising Rate ETF (NYSEARCA: RISE ) The 9 ETPs removed from ETF Deathwatch due to improved health: Columbia Large Cap Growth (NYSEARCA: RPX ) PowerShares KBW Capital Markets (NYSEARCA: KBWC ) PowerShares KBW Insurance (NYSEARCA: KBWI ) ProShares Short FTSE China 50 (NYSEARCA: YXI ) ProShares Ultra S&P Regional Banking (NYSEARCA: KRU ) ProShares UltraShort Technology (NYSEARCA: REW ) QuantShares U.S. Market Neutral Anti-Beta (NYSEARCA: BTAL ) SPDR BofA Merrill Lynch Emerging Markets Corp Bond (NYSEARCA: EMCD ) SPDR S&P International Consumer Discretionary (NYSEARCA: IPD ) The 13 ETPs removed from ETF Deathwatch due to delisting: AdvisorShares Accuvest Global Long Short (NYSEARCA: AGLS ) iShares Asia Developed Real Estate (NASDAQ: IFAS ) iShares Financials Bond (NYSEARCA: MONY ) iShares Industrials Bond (NYSEARCA: ENGN ) iShares MSCI All Country Asia Information Technology (NASDAQ: AAIT ) iShares MSCI All Country Asia x-Japan SmallCap (NASDAQ: AXJS ) iShares MSCI Australia Small-Cap (BATS: EWAS ) iShares MSCI Canada Small-Cap (BATS: EWCS ) iShares MSCI Emerging Markets Growth (NASDAQ: EGRW ) iShares MSCI Emerging Markets EMEA (NASDAQ: EEME ) iShares MSCI Emerging Markets Consumer Discretionary (NASDAQ: EMDI ) iShares MSCI Emerging Markets Energy Sector (NASDAQ: EMEY ) iShares MSCI Singapore Small-Cap (NYSEARCA: EWSS ) ETF Deathwatch Archives Disclosure covering writer: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Huntington Ecological Strategy ETF: Green Is Good

Summary The fund focuses on ‘corporate social responsibility’. The fund is smartly weighted with top market performers. Generally, it’s a very well-diversified, moderate risk, capital appreciation fund. There seems to be a majority consensus among scientists that the Earth’s climate is changing, however there does seem to be some disagreement whether that change is being caused by industrial emissions or simply part of a natural, ancient geological cycle. Some of this divisiveness is clearly along economic lines. For one example, many emerging market or emerged market nations rely on inexpensive coal resources to generate electric power. Further, there’s a huge global industry built up around coal: heavy equipment manufacturing, rail and marine transportation, power companies and even the miners whose livelihoods are threatened. On the other hand there’s a mindset that believes, ‘ better safe than sorry ‘. To be sure, most companies do have a corporate conscience and have implemented a responsible eco-policy. However, some companies take it a step further and practice a broader social responsibility policy . The Huntington Ecological Strategy ETF (NYSEARCA: HECO ) accomplishes exactly that. This fund offers a ‘single package’ opportunity for those wishing to invest with companies having strong sustainability and fair trade policies as well as eco-friendly policy. In Huntington’s own words (from their 2014 year-end commentary), ” … we look for companies that are practicing and promoting environmental stewardship while being able to generate sustainable level of profits that will represent logical investment over a long term…” (click to enlarge) There are similar funds to choose from. Two of the four funds filtered out by the Seeking Alpha ETF Hub , the First Trust NASDAQ Clean Edge Energy ETF (NASDAQ: QCLN ) and the PowerShares WilderHill Clean Energy Portfolio (NYSEARCA: PBW ) focus, as one might expect from their names, mainly on clean energy related companies. The PowerShares WilderHill Progressive Energy Portfolio (NYSEARCA: PUW ) has a somewhat broader objective being, “… focused on the following areas: alternative energy, better efficiency, emission reduction, new energy activity, greener utilities, innovative materials and energy storage …” There’s a difference in the Huntington Eco-Logical Strategy ETF in that it goes beyond energy concerns and, “… invests at least 80% of its net assets… …in the securities of ecologically-focused companies… …that have positioned their business to respond to increased environmental legislation, cultural shifts towards environmentally conscious consumption, and capital investments in environmentally oriented projects. These companies include all companies that are components of recognized environmentally-focused indices …” The strategy is smart. It isn’t restricting itself to a particular sector or manufacturing practice. Instead it seeks well performing, well established and well managed companies with an active and strong sense of corporate social responsibility in its operations, however that may be. (Data from Huntington) The fund is weighted towards cyclically sensitive sectors starting with IT, comprising 25%, Industrials at 10% and Consumer discretionary at 13% for a total of 48% of the fund. Defensive sectors are HealthCare at 17%, Utilities at 6% and Consumer Staples at 12% totaling 35% of the fund and lastly, sensitive sectors such as Financials at 12%, Energy at 2% and Materials at 2% accounting for 16% of the fund. (There is also a small cash position). Checking with three different sources, MarketWatch , Yahoo and the Wall Street Journal , the fund seems to have a surprisingly low beta of about 1; i.e., it moves with the market. (Data from Huntington) When putting aside the corporate social responsibility focus, it otherwise seems to be a reasonably well diversified fund with a moderate bias towards risk as demonstrated by its sector allocations. So the last question is just how socially responsible are the included companies? For instance, Google’s (NASDAQ: GOOGL ) participation is spelled out at Google Green: the Big Picture , where social-responsible investors will get a detailed accounting as only Google can present. Similarly, Nike (NYSE: NKE ) promotes ” A Better World ” and also details its efforts for manufacturing sustainability. The table below lists just a few corporate policy links. Some are really well presented, while others are rather straight forward, as if part of a shareholder’s report but are there nonetheless. In the left column are the larger holdings of the fund and on the right some of the smaller holdings. In general, the corporate responsibility presentations cover the complete range from “WOW!” to “legal-formal”. Only a few are sampled below, however, in general, it always seems to be a good idea to read a company’s corporate responsibility policy before investing. All investors should keep in mind the losses which have occurred, both in share price and earnings, in the past when absent policies led to ‘oversights’; bad labor practices, illegally purchased resources or damaging environmental accidents. A socially responsible company mitigates risks. The fund is relatively new to the market having been incepted in June of 2012 and is actively managed. Huntington notes total assets of $7,228,416.00 with 200,000 shares outstanding; it trades on NYSE-Arca. Currently it trades at a -0.33% discount to NAV. Huntington notes it largest premium to NAV as 0.01%, largest discount to NAV at -2.24% as well as its average Premium/Discount of -0.67. The fund distributes annually, with a yield of 0.22%. The prospectus is a bit more detailed noting a weighted average market cap of $87.569 million, a weighted P/E of 26.8 and a price to book multiple of 5.7. Also, the prospectus identifies the underlying index as the MSCI KLD 400 Social Index . The investor should note that the First Trust Fund tracks the NASDAQ Clean Edge Green Energy Index ; the PowerShares funds, PBW and PUW track the WilderHill Clean Energy Index and the WilderHill Progressive Energy Index , respectively. The expense ratio is quite high at 0.95% with a gross expense ratio of 2.08%. However Huntington does note that, ” contractual fee waivers are in effect until August 31, 2015. ” Also, the average annual turnover is around 55%. To sum up, the fund is indeed, as advertised, Eco-Logical. All said and done, it seems to be a really good fund in general, and perfect for those concerned that their capital is being invested in social minded, sustainably conscience and earth-friendly companies. One word of caution: This fund is very lightly traded, but there’s absolutely no reason it should be that way! Aside from the ‘green motif’, this is a really well constructed, diversified fund with moderate risk. It merely needs to be discovered. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: CFDs, spread betting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.