That is the tagline for the Super Bowl of Indexing that I am headed down to later today. Needless to say it is hysterical. That tagline can mean different things to different people of course, still I think it is brilliant, but I think it is what have been trying to explore here over the last five years minus the clever tagline.
Alpha can also mean a better risk adjusted result not just higher returns. While not all ETPs will end up being useful, chosen selectively and weighted properly they are an increasingly important part of the solution.
A big theme here has been country selection and sector weighting. I can't be certain how difficult country selection and sector weighting really are I doubt it is as difficult as many people think especially when attention is paid to not overly relying on any one outcome. Discretionary stocks tend to do better early cycle, staples tend to do better late cycle along with healthcare stocks, China was up a ton by the middle of 2007 then it went down a lot, Australia has no subprime loans, big Western Europe has a lot of the same problems that the US does.
These are all fairly casual observations that are easily made and then implemented either with purchases or avoidance of certain market segments. ETPs obviously make this much easier to access.
Today I will be moderating a panel titled "IS THERE STILL A NEED FOR AN ALLOCATION TO INTERNATIONAL DEVELOPED MARKETS AND THE IMPACT OF CROSS MARKET CORRELATION." Based on the conference call we had last week I believe one of the panelists is in the all world index camp so we may be able to mix it up some depending on what the other panelists think.
Tuesday I am a panelist in a session about regulatory reform for ETPs but we've been given free reign to go wherever we want with that one. We have a brokerage guy, a product guy and an RIA (yours truly) all moderated by a lawyer--this could be the best conference session I've ever participated in.
As I have been attending these things over the last few years I have observed a reluctance on the part of professionals to embrace new things. The move into ETFs, given the utility they offer, has been much slower than I would have thought. Yes they are used by a lot of people but that is mostly the the broadest of funds like SPY and EFA. This has not been sufficient for long term portfolio success during this cycle. I think it would be a bad idea to bet on these horses for the next cycle.
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1 comments:
Diversification certainly needs to be more nuanced in the current (and I suspect future) investing environment and ETF's are excellent instruments for the purpose but that probably means more attention to currencies and global demographics rather than a necessarily dramatic increase in the actual number of assets.
With that thought in mind here is a good summation of the implications for a lower dollar (ht Barry Ritholtz) at http://tinyurl.com/yd45hz8 and also a rather well-designed World Clock web-widget at http://tinyurl.com/2qeuu4 that displays a surprising amount of global data once you start clicking various links and tabs (okay, I have a weakness for interesting mashups).
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