Global Liquid ETFs. Mean / Variance, & Hierarchical Equal Risk Contribution Portfolios. International Equities, Equity Styles, Special Situations, Size vs. Value, Fixed Income & Real Assets.

ETFs Overview

In our weekly ETF Compass, we review the performance of 45 ETFs grouped across six investment themes: International Equities, Equity Styles, Special Situations, Size vs. Value, Fixed Income and Real Assets. The performance table will show the ETF performance over 1 week, 1 month, 3 months, 1 year. The last column to the right reports the Investment Amount that generates an expected maximum loss (based on 99% 3Y Historical VaR) of $10k. In the second section we review the allocations of two commonly employed portfolio construction models: Mean/Variance and Hierarchical Equal Risk Contribution. Last but not least, we provide summary data about the ETFs we currently monitor. Hope you enjoy the read!

Risk Aversion Index ETFs

We perform a regression between the last 9 months total returns and the last 9 months volatility. We use it as a quick and dirty measure to identify those ETFs that are either cheap or expensive relative to their expected returns given their level of volatility. The regression line represents the relationship between returns and volatility for the ETFs analyzed. By looking at the slope of the regression line, we can get a sense of how much return you can expect to receive for each unit of volatility in the current market regime.

Overvalued / Undervalued ETFs

Based on our Risk Aversion Index analysis, we have identified the ETFs that are currently overpriced and those that offer the best value. Among the equity ETFs, VGK (Vanguard FTSE Europe ETF) and IQLT (iShares Edge MSCI Intl Quality Factor ETF) are the most expensive, while the CSD (Invesco S&P Spin-Off ETF) is the most expensive special situation ETF. Furthermore, GLD (SPDR Gold Shares) is also trading at expensive levels.

On the other hand, our cross-assets analysis indicates that the fixed income complex is currently relatively cheap. Additionally, based on a simple historical performance analysis, we recommend considering tactical asset allocation in USM (ProShares Ultra Basic Materials), UUP (Invesco DB US Dollar Index Bullish Fund), IYR (iShares U.S. Real Estate ETF), DBE (Invesco DB Energy Fund), and SCHH (Schwab US REIT ETF), as they appear to offer the best value.

International Equities

Equity Styles

Special Situations

Size vs. Value

Fixed Income

Real Assets

ETFs Correlation Matrix

Interesting to note, that very few ETF strategies are actually lowly correlated to the others.

The dollar index, implemented with the UUP ETF, is probably the only one that over the last 3 years has provided a clear diversification benefit. The BIL ETF (short dated Treasuries) is also lowly correlated. But that’s almost by construction! The key question is: will the USD Index continue to provide diversification benefits in the portfolio construction? I have some doubts. I think treasuries, both short and intermediate maturities, may be a more clear-cut solution at this stage of the cycle. The USD has been an hedge for inflation as the FED has been out-hawking its developed markets peers. But will the USD hedge a potential recession? Maybe, but only to a limited extent.

Cluster Identification: UUP & BIL proved themselves as solid diversification building blocks. But, what’s next?

The dendrogram is a chart based on hierarchical clustering, which groups assets based on their similarity in terms of their returns over time. The assets that are on the far right of the dendrogram, such as the dollar index and short-dated treasuries, have returns that are least similar to the other assets in the analysis. The assets on the far left of the dendrogram, such as USM, have returns that are most similar to the other assets in the analysis.

The grouping of assets in the middle of the dendrogram represents clusters of assets that have similar returns to each other, but are different from the assets in the other clusters. This means that they may have similar risk and return characteristics, and may be suitable for use in similar investment strategies.

ETFs Network Chart, the treasure hunt for diversification opportunities.

ETFs that are highly correlated with each other are placed closer together on the chart, while ETFs that are less correlated are placed farther apart. This creates clusters or groups of ETFs that tend to move together, and these groups are represented by the sub regions within the chart.

The position of an ETF in the chart can also provide information about its characteristics. ETFs located on the edges of the chart tend to have lower correlations with other ETFs in the network, and thus may provide greater diversification benefits when added to a portfolio. On the other hand, ETFs located closer to the center of the chart have higher correlations with other ETFs and may be more volatile or have greater systemic risk. Overall, the planar maximally filtered network chart provides a visual representation of the relationships between different ETFs in a portfolio, allowing investors to identify potential clusters and diversification opportunities.

Mean / Variance Portfolio

Portfolio Weights:

Risk Contribution by asset:

Mean/Variance Returns Histogram:

Mean/Variance Returns Range:

Performance over the last 2 years:

Hierarchical Equal Risk Contribution

Portflio Weights:

HERC risk contribution by asset:

HERC Returns Histogram:

HERC Returns Range:

Performance over the last 2 years:

ETFs Taxonomy

International Equities ETFs

QQQ – Invesco QQQ Trust

• Launch Date: 1999-03-10
• AUM: $197.4 billion
• Main Exposures: Large-cap U.S. technology stocks
• Factsheet: https://www.etf.com/QQQ#overview

SPY – SPDR S&P 500 ETF Trust

• Launch Date: 1993-01-22
• AUM: $414.3 billion
• Main Exposures: Large-cap U.S. stocks across all sectors
• Key Data: https://www.etf.com/SPY#overview

IWB – iShares Russell 1000

• Launch Date: 2000-05-15
• AUM: $30.6 billion
• Main Exposures: Large-cap U.S. stocks
• Key Data: https://www.etf.com/IWB#overview

IWM – iShares Russell 2000

• Launch Date: 2000-05-19
• AUM: $68.9 billion
• Main Exposures: Small-cap U.S. stocks
• Key Data: https://www.etf.com/IWM#overview

VGK – Vanguard FTSE Europe

• Launch Date: 2005-03-04
• AUM: $28.1 billion
• Main Exposures: Large- and mid-cap European stocks
• Key Data: https://www.etf.com/VGK#overview

EWJ – iShares MSCI Japan

• Launch Date: 1996-03-12
• AUM: $14.6 billion
• Main Exposures: Large- and mid-cap Japanese stocks
• Key Data: https://www.etf.com/EWJ#overview

MCHI – iShares MSCI China

• Launch Date: 2011-03-29
• AUM: $10.1 billion Main Exposures: Large- and mid-cap Chinese stocks
• Key Data: https://www.etf.com/MCHI#overview

SPEM – SPDR Portfolio Emerging Markets

• Launch Date: 2007-08-15
• AUM: $8.8 billion
• Main Exposures: Large-, mid-, and small-cap stocks in emerging markets
• Key Data: https://www.etf.com/SPEM#overview

Equity Styles ETFs

IWD – iShares Russell 1000 Value

• Launch Date: 2000-05-22
• AUM: $64.3 billion
• Main Exposures: Large-cap U.S. value stocks
• Key Data: https://www.etf.com/IWD#overview

IWF – iShares Russell 1000 Growth

• Launch Date: 2000-07-18
• AUM: $94.9 billion
• Main Exposures: Large-cap U.S. growth stocks
• Key Data: https://www.etf.com/IWF#overview

VYM – Vanguard High Dividend Yield

• Launch Date: 2006-11-16
• AUM: $52.4 billion
• Main Exposures: Large-cap U.S. dividend-paying stocks
• Key Data: https://www.etf.com/VYM#overview

USM – iShares Russell Mid-Cap Value

• Launch Date: 2001-07-18
• AUM: $2.2 billion
• Main Exposures: Mid-cap U.S. value stocks
• Key Data: https://www.etf.com/USM#overview

MTUM – iShares MSCI USA Momentum Factor

• Launch Date: 2013-04-18
• AUM: $22.3 billion
• Main Exposures: Large- and mid-cap U.S. stocks with positive momentum
• Key Data: https://www.etf.com/MTUM#overview

IJR – iShares Core S&P Small-Cap

• Launch Date: 2000-05-22
• AUM: $77.7 billion
• Main Exposures: Small-cap U.S. stocks
• Key Data: https://www.etf.com/IJR#overview

QUAL – iShares MSCI USA Quality Factor

• Launch Date: 2013-07-16
• AUM: $32.2 billion
• Main Exposures: Large- and mid-cap U.S. stocks with strong financials and stable earnings
• Key Data: https://www.etf.com/QUAL#overview

Special Situations ETFs

IPO – Renaissance IPO

• Launch Date: 2013-10-16
• AUM: $1.8 billion
• Main Exposures: Newly listed U.S. IPOs
• Key Data: https://www.etf.com/IPO#overview

PSP – Invesco Global Listed Private Equity

• Launch Date: 2006-10-24
• AUM: $834.8 million
• Main Exposures: Listed private equity companies globally
• Key Data: https://www.etf.com/PSP#overview

PKW – Invesco Buyback Achievers

• Launch Date: 2006-12-21
• AUM: $4.2 billion
• Main Exposures: U.S. companies with a history of share buybacks
• Key Data: https://www.etf.com/PKW#overview

CSD – Invesco S&P Spin-Off

• Launch Date: 2006-12-20
• AUM: $1.1 billion
• Main Exposures: U.S. companies that have been spun off from their parent companies
• Key Data: https://www.etf.com/CSD#overview

Size vs Value ETFs

IVE – iShares S&P 500 Value

• Launch Date: 2000-07-18
• AUM: $32.8 billion
• Main Exposures: Large-cap U.S. stocks with value characteristics
• Key Data: https://www.etf.com/IVE#overview

IVW – iShares S&P 500 Growth

• Launch Date: 2000-07-18
• AUM: $43.9 billion
• Main Exposures: Large-cap U.S. stocks with growth characteristics
• Key Data: https://www.etf.com/IVW#overview

IJJ – iShares S&P Mid-Cap 400 Value

• Launch Date: 2000-07-26
• AUM: $6.2 billion
• Main Exposures: Mid-cap U.S. stocks with value characteristics
• Key Data: https://www.etf.com/IJJ#overview

IJK – iShares S&P Mid-Cap 400 Growth

• Launch Date: 2000-07-26
• AUM: $9.6 billion
• Main Exposures: Mid-cap U.S. stocks with growth characteristics
• Key Data: https://www.etf.com/IJK#overview

IWO – iShares Russell 2000 Growth

• Launch Date: 2000-07-24
• AUM: $15.7 billion
• Main Exposures: Small-cap U.S. stocks with growth characteristics
• Key Data: https://www.etf.com/IWO#overview

IJH – iShares S&P Mid-Cap 400

• Launch Date: 2000-05-22
• AUM: $75.1 billion
• Main Exposures: Mid-cap U.S. stocks
• Key Data: https://www.etf.com/IJH#overview

IWM – iShares Russell 2000

• Launch Date: 2000-05-19
• AUM: $68.9 billion
• Main Exposures: Small-cap U.S. stocks
• Key Data: https://www.etf.com/IWM#overview

IWN – iShares Russell 2000 Value

• Launch Date: 2000-07-24
• AUM: $12.7 billion
• Main Exposures: Small-cap U.S. stocks with value characteristics
• Key Data: https://www.etf.com/IWN#overview

Fixed Income ETFs

BIL – SPDR Bloomberg Barclays 1-3 Month T-Bill

• Launch Date: 2007-08-07
• AUM: $14.3 billion
• Main Exposures: Short-term U.S. Treasury bills
• Key Data: https://www.etf.com/BIL#overview

VTIP – Vanguard Short-Term Inflation-Protected Securities

• Launch Date: 2010-12-02
• AUM: $25.1 billion
• Main Exposures: Short-term U.S. Treasury Inflation-Protected Securities
• Key Data: https://www.etf.com/VTIP#overview

SPSB – SPDR Portfolio Short Term Corporate Bond

• Launch Date: 2017-10-03
• AUM: $7.1 billion
• Main Exposures: Short-term investment-grade U.S. corporate bonds
• Key Data: https://www.etf.com/SPSB#overview

SRLN – SPDR Blackstone / GSO Senior Loan

• Launch Date: 2013-04-08
• AUM: $6.3 billion
• Main Exposures: Senior floating-rate loans to U.S. companies
• Key Data: https://www.etf.com/SRLN#overview

AGG – iShares Core U.S. Aggregate Bond

• Launch Date: 2003-09-22 AUM: $95.6 billion
• Main Exposures: Broad-based U.S. investment-grade bonds
• Key Data: https://www.etf.com/AGG#overview

GOVT – iShares U.S. Treasury Bond

• Launch Date: 2012-02-14
• AUM: $18.4 billion
• Main Exposures: U.S. Treasury bonds across the yield curve
• Key Data: https://www.etf.com/GOVT#overview

BNDX – Vanguard Total International Bond

• Launch Date: 2013-06-04
• AUM: $56.6 billion
• Main Exposures: Investment-grade foreign bonds hedged to the U.S. dollar
• Key Data: https://www.etf.com/BNDX#overview

TLT – iShares 20+ Year Treasury Bond

• Launch Date: 2002-07-22
• AUM: $14.9 billion
• Main Exposures: Long-term U.S. Treasury bonds
• Key Data: https://www.etf.com/TLT#overview

LQD – iShares iBoxx $ Investment Grade Corporate Bond

• Launch Date: 2002-07-22
• AUM: $57.9 billion
• Main Exposures: Investment-grade U.S. corporate bonds
• Key Data: https://www.etf.com/LQD#overview

HYG – iShares iBoxx $ High Yield Corporate Bond

• Launch Date: 2007-04-04
• AUM: $23.2 billion
• Main Exposures: High-yield U.S. corporate bonds
• Key Data: https://www.etf.com/HYG#overview

EMB – iShares J.P. Morgan USD Emerging Markets Bond

• Launch Date: 2007-12-11
• AUM: $20.9 billion
• Main Exposures: U.S. dollar-denominated bonds issued by emerging-market governments and corporations
• Key Data: https://www.etf.com/EMB#overview

EMLC – VanEck Vectors J.P. Morgan EM Local Currency Bond

• Launch Date: 2010-07-22
• AUM: $4.7 billion
• Main Exposures: Local-currency denominated debt issued by emerging market governments
• Key Data: https://www.etf.com/EMLC#overview

Real Assets ETFs

IYR – iShares U.S. Real Estate

• Launch Date: 2000-06-12
• AUM: $8.3 billion
• Main Exposures: U.S. real estate stocks and REITs
• Key Data: https://www.etf.com/IYR#overview

SCHH – Schwab U.S. REIT

• Launch Date: 2011-01-13
• AUM: $11.8 billion
• Main Exposures: U.S. real estate stocks and REITs
• Key Data: https://www.etf.com/SCHH#overview

GLD – SPDR Gold Trust

• Launch Date: 2004-11-18
• AUM: $50.2 billion
• Main Exposures: Physical gold bullion
• Key Data: https://www.etf.com/GLD#overview

DBC – Invesco DB Commodity Index Tracking Fund

• Launch Date: 2006-02-03
• AUM: $3.8 billion
• Main Exposures: Commodity futures contracts
• Key Data: https://www.etf.com/DBC#overview

IGF – iShares Global Infrastructure

• Launch Date: 2007-03-08
• AUM: $3.6 billion
• Main Exposures: Global infrastructure companies
• Key Data: https://www.etf.com/IGF#overview

TAN – Invesco Solar

• Launch Date: 2008-04-15
• AUM: $10.7 billion
• Main Exposures: Global solar energy companies
• Key Data: https://www.etf.com/TAN#overview

DBA – Invesco DB Agriculture Fund

• Launch Date: 2007-01-05
• AUM: $1.1 billion
• Main Exposures: Agricultural commodity futures contracts
• Key Data: https://www.etf.com/DBA#overview

WOOD – iShares Global Timber & Forestry

• Launch Date: 2008-06-24
• AUM: $2.2 billion
• Main Exposures: Global timber and forestry companies
• Key Data: https://www.etf.com/WOOD#overview

DBE – Invesco DB Energy Fund

• Launch Date: 2006-01-05
• AUM: $254.7 million
• Main Exposures: Energy commodity futures contracts
• Key Data: https://www.etf.com/DBE#overview

InflectionPoint Team

Disclaimer

All views expressed on this site are my own and do not represent the opinions of any entity with which I have been, am now, or will be affiliated. I assume no responsibility for any errors or omissions in the content of this site and there is no guarantee for completeness or accuracy. The content is food for thought and it is not meant to be a solicitation to trade or invest. Readers should perform their investment analysis and research and/or seek the advice of a licensed professional with direct knowledge of the reader’s specific risk profile characteristics.