ACSI v SPY

This post will compare ACSI to SPY. It's interesting because ACSI has an entirely different methodology using customer satisfaction as a basis for investment. This is a new fund. Yahoo's data begins 11/7/2016.

Here's the chart and return data for the comparison.

ACSI v SPY

As anyone can see, ACSI holds up very well to SPY. Of course, this is a very limited dataset and few conclusions can be drawn from it.

If anyone wants the excel spreadsheet, just ask.

Disclaimer: This blog is not investment advice, is for information purposes only, may be subject to change without notice, and while prepared with care, may be subject to omissions and errors.

The Benchmarks-VFINX SPY VOO

For this post I will look at the history of the VFINX, SPY and compare them both to the Vanguard S&P 500 ETF-symbol VOO.

Comparing VFINX and SPY is a good starting point. We need to see if both benchmarks, which measure the same thing, ARE the same. VFINX and VOO is a valid comp because the VOO is the ETF version of the VFINX. The ETF is just another wrapper for the same content. Investors need to know if wrappers matter.

There ARE other index mutual funds and index ETFs  (such as IVV) but they all started much later than the VFINX and SPY and I am not sure the comps of these others will be useful to investors. Since these all measure the same thing, we can expect them to be the same. Below are the history and and data for the VFINX, SPY and VOO.

Full History

Chart 1. Full History

Table 1. Full History

There ARE differences. For some reason, when compared head to head for full years only, the mutual fund has a higher average annual return and lower standard deviation of annual returns than either ETF. Most interesting may be the VOO data which shows a significantly lower return than its mutual fund cousin.

Does the ETF reduce return when compared to the same thing in a mutual fund? Maybe Vanguard has an answer.  The risk reward chart shows VFINX, the top left data point, outperforming with higher return and lower risk than either the SPY, middle point, and VOO, the far left point.

Chart 2. Risk Reward

Despite the return difference, the correlations are very high, as expected.

Table 2. Correlation

VFINX versus SPY

This is head to head vami chart starting with the start date for SPY, 1/29/1993 = 1000.


Chart 3. VFINX versus SPY

Table 3. VFINX versus SPY

When I first looked at this, I thought there was an error starting with the 3/9/2009 recession low. Here are the peak to trough to current date returns.

Table 4. Peak to Recession Trough to Present

VFINX mutual fund sharply outperformed SPY for these critical periods. I still don't get it, but I cannot find an error.

VFINX versus VOO

Here may be the most remarkable test. VFINX and VOO are the same fund except one is a mutual fund and the other is an ETF as noted before. This is a vami chart showing the difference.

Chart 4. VFINX to VOO

As noted before, either mutual funds outperform ETFs or there is a problem I am missing. I'll ask Vanguard about this. Note: mutual funds are marked to NAV every close while ETFs are freely traded with arbitrage enforcement.

The excel spreadsheet for this post is available to anyone. Just ask.

Disclaimer: This blog is not investment advice, is for information purposes only, may be subject to change without notice, and while prepared with care, may be subject to omissions and errors.

Indexing Genie is Out of the Bottle - The Road to Serfdom

In August of 2016, the brokerage firm Sanford C. Bernstein & Co., LLC. wrote what may be the only serious criticism of passive index investing that I have ever seen.

(https://www.bloomberg.com/news/articles/2016-08-23/bernstein-passive-investing-is-worse-for-society-than-marxism).

The gist of this article is that despite the utter and total complete investment success of indexing as an investment strategy (almost 1/3rd of all aum when compared to every other strategy) indexing is a threat to capitalism. That is, passive investing "impedes the efficient allocation of capital". The article further states that "the social function of active management ... is to direct capital to its most productive end, facilitating sustainable job creation and a rise in the aggregate standard of living". 

Hurrah! The indexing genie is out of the bottle: indexing or passive investing is a SYSTEMIC RISK!

The most basic systemic risk in finance is anything that is not sensitive to price.  A well functioning capitalist system creates buyers when prices are too low and creates sellers when prices are too high. Unfortunately, passive indexers, like myself, do not have market incentives to buy or sell. We just buy and hold.

So, what's wrong with that? Lots is wrong with that. Passive investing is divorced from price signals. Passive investing is actually a parasite on the back of the remaining active investors. Without active investing, there would be no price signals and no markets. 

As long as the great majority of investors are active, passive works. Passive assets under management, aum, is currently estimated to be just under 30% of all aum. If this number were to grow much beyond 50% there will be fewer and fewer investors left to tame the markets and passive investors will be on a new uncharted road. 

Disclaimer: This blog is not investment advice, is for information purposes only, may be subject to change without notice, and while prepared with care, may be subject to omissions and errors.

First Post

Saw my friend Phil Bok's new ACSI fund on LinkedIn. Phil's a very smart guy and I like his fund, but I had to test it and that led to this blog where I will test any fund against indexing.

Criteria I will use on every test are as follows:

1-Easy free public data only.
Too many studies use proprietary, modified data that everyone can't check.  If your study uses these, no go for me.  Fund issuer data and Yahoo data is freely available as of this writing. If you claim that Yahoo's data is bad, well, you know, we all want to see the plan. My answer is that I sometimes test for that and Yahoo data is generally very good. Finally, why Yahoo? Because if Yahoo doesn't list it, is it really widely available for the average investor? Show me a more popular and free data source and I'll use it.

2-Continuously compounded daily returns only.
I like easy arithmetic. I compute the daily return = ln(b/a), where a = Yahoo's "adjusted close" on day 1 and b = the "adjusted close" on day 2. Adjusted close is its own issue and my tests for that are pretty good too.

3-Volatility = the excel population standard deviation function-STDEV.P
Simple and as good as any other measure and does not buy in to the fiction that term rearrangements add information.

4-Correlation = the excel correlation function.
Correlation is important because we don't want to buy the same returns in a different wrapper.

5-Select maximum, calendar year and rolling time periods, only.
Tricky one. Every possible time period will have a different result. A perfect track record would beat in every possible time period-impossible!  So how do you pick a fair time period? You don't pick; you use the same periods for each test and look for consistency.

6-Use VFINX or SPY as the index.
You can buy these; you cannot buy the S&P500 Index.

VOO is a great choice too but is 17 years too late. VFINX is the mother of all indexes but it's a mutual fund not an ETF and ETFs are where it's at in today's markets. So, if you have a mutual fund, VFINX will be the index. If you have an ETF, SPY is the bogey.

That's it. If you have a public track record on Yahoo or somewhere that can beat it, send me the symbol. Maybe there's a million out there that nobody knows about.

Disclaimer: This blog is not investment advice, is for information purposes only, may be subject to change without notice, and while prepared with care, may be subject to omissions and errors.