I got a couple of reasonable "oh no you di-ints" on the post this morning that tried to compare complex products versus simple.The fund in question is TFS Market Neutral (TFSMX).
My only observation was that the fund is complicated. One reader noted that it has more than bounced back from its August 2007 low and another reader said that he doubted that staying simple could match the result from TFSMX over varied market conditions.
The chart goes back to the inception of the Rydex Managed Futures Fund (RYMFX) which I own. The chart also shows two of the hotter sectors over that time, as measured by sector ETF, as well. It would be fair to criticize the chart as not being long enough but it has been a wild 17 months and it is as far back as RYMFX can go.
Without getting into which one is better because as you can see they each might take turns being the better performer, RYMFX is simpler. Long or short is determined by the seven month moving average for each fo the components and you can go to the site to see what the components are.
Since the inception of the Rydex fund the two have taken different paths to the same result (probably just a coincidence).
It is reasonable to say that two sector index funds (MXI which is a client holding and IYE) are also simpler than TFSMX.
It would be easy to conclude that I am mining data with the MXI and IYE comparisons except some sector has to be the best performer and if you are willing to construct a portfolio at the sector level you will own the best performing sector (and the worst too).
If you were to buy this sort of fund what percentage of your portfolio would you allocate? Is there any way it would be larger than what you would allocate to the energy sector (an equalweight in energy these days is 16%)? You might put more into a long short fund than you would in materials though as an equalweight in that sector is only 3.67%.
The argument for simple is, I think, a little more credible because it is being made with things I have been writing about for ages as opposed to looking for something I've never heard of to show simple is better. Going forward maybe TFSMX will clean the clock of every other thing out there but it will not be simple and so it will be harder to manage the volatility.
17 comments:
Roger, I'm a little confused about what appears to be an inconsistency in how you describe your approach. From the blog, I get the impression that you favor the use of ETFs over individual stocks except when the stock is a superior proxy for a particular theme. But in your article in greenfaucet you mention that you put your clients in 40-50 stocks with only a few ETFs. Am I missing something here? Also, how do you manage to monitor all those stocks, especially when presumably each client has an individualized portfolio? And by the way, you have a first-rate blog. I have learned a lot from it.
discussing ETFs != purchasing ETFs
anon, your impression is incorrect. i have disclosed countless times over my prefernce for individual stocks. to the extent this blog is a look over my shoulder you will see many posts about trades involving equties. to the extent this blog tries to help people learn how to fish i write about ETFs. additionally i think the manner in which i look under the hood of ETFs is kind of unique which offers, IMO, some amount of value here, TSCM, greenfaucet or anywhere else.
Roger
What asset allocation model do you use to identify equalweights of 16% energy, 3.67% materials etc in your posting?
I for one would be interested to see the full equalweights for all 100%
Regards.
Clive
Clive this is available in a few places but the easiest in on the ishares site on the page for IVV which is the ticker for their S&P 500 fund.
thanks kevin, i'll try to give you a call. i removed your comment just because you left your phone number not because there was anything wrong with the comment.
Clive, if you want a simple look at sector weightings you can use the Sector Spider "map of the market"
I find it pretty handy.
Roger - just curious, how do you personally protect your portfolio when you become defensive? Move a certain percent into cash, buy puts, buy inverse ETFs, shift into defensive names?
Re: Equalweightings
DOH!
Had a bit of a brain f*rt
Thanks Roger/Jeff
Re: Anonymous defensive/protection
I believe Rogers mentioned several times about using double short funds for such purpose.
Regards. Clive.
Some M3 money supply info that you may want to see.
http://www.nowandfutures.com/key_stats.html
that is some slope
Speaking of slopes.....
http://tinyurl.com/5kgun4
http://tinyurl.com/6lel6u
http://tinyurl.com/5qjhgf
A reality check for all the bogleheads out there:
http://tinyurl.com/http-tinyurl-com-18r
jacks, the article in the WSJ is cherry picking a LOT of circumstances to fit it's arguments.
Rule 1: You have to be selective in picking sectors/asset classes.
Rule 2: Even if you had started investing in the 'peak' last summer, drip-feeding is still your friend.
Rule 3: Do what they do, not what they say, lol.
Rule 4: Not worthy of comment
Rule 5: International markets will be VERY important over the next decade
Rule 6: *snore*
Rule 7: A snapshot of the markets will not paint a true picture
Rules 8-10: More reason to continue seeking financial advice from sources who may not, directly, financialy benefit.
That's my take on it but, then again, I'm not a writer for the WSJ or any other publication so what the heck do I know?!!
Roger, Any interest in updating this analysis now that time has passed? Rich Gates, TFS Capital
sure, i'll write an update
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