Prep for 2022-Indexes vs 3X Indexes - Investment Magic!

According to the latest (Sep 2021) SPIVA Index Scorecard 70% of all active managers could not beat the S&P500 Index. Other studies show that managers who DO outperform have "below random" returns in the following three years. To nail the point, of the "Top 250 Mutual Funds" listed in this weekend's (12/24/2021) Wall Street Journal, only 7 beat the Vanguard Admiral S&P 500 mutual fund. 8 (other index) funds matched it.  This is obviously NOT a representative sampling but it was good enough for the Wall St. Journal. 

So we get it, the original Malkiel and Bogle (buy the earliest editions you can find) were right all along (as if the success of Vanguard hasn't proved it for a generation!) buy and hold the index fund. It's a heck of a good portfolio!

Index ETF or 3X ETF?

Anticipating a buy on the year-end close this Friday December 31st and hold for all of 2022, this post compares, mainly, the risks, of holding the major index ETFs versus their 3X ETFs. 

Why ETFs? Well, while they are closed in the after-hours, unlike the index futures, they cannot trade outside normal market hours. After LONG history we have to agree that the lack of trading ability is a GOOD thing, an EDGE, for any investor.

Futures also have expirations and, perhaps, rolls which ETFs do not have. You CAN buy and hold an ETF for years with NO taxable event until you sell. Futures mark to market every year.  

What about your thirst for leverage? You can buy ETFs on margin or you can buy 3X ETFs outright with no margin costs - how they do that is magic.

Using Yahoo's full year daily historical data for the SPY and QQQ outright ETFs and the SPXL and TQQQ 3X ETFs since inception (note the TQQQ did not trade until and could not be compared until 2010), we get the following results:

SPY = SPDR S&P 500 ETF Trust (SPY)

QQQ = Invesco QQQ Trust (QQQ) 

SPXL = Direxion Daily S&P500 Bull 3X Shares (SPXL) 

TQQQ =ProShares UltraPro QQQ (TQQQ) 

Drawdown = (Yearly low/yearly high) -1

Return = (Ending price - starting price) / starting price

Start date = Last trading day each prior year.

End date = Last trading day of each year.

2021=Year-to-date as of the close on 12/23/2021

Source: Yahoo Finance

The SPY average return 2011 - 2021 was a remarkable 17%!  Although, SPY's worst drawdown within any given year was Covid's 2020 -41% decline. The 3X SPY, SPYXL average return was 48%, HIGHER than 3 times the SPY. Oddly enough, the worst SPXL drawdown was -73%, significantly better than 3 times -41% or -123% from a multiple position in the SPY. As far as SPY goes, the 3X ETF is signifcantly BETTER!

For the QQQ, the TQQQ average drawdown of -20% is WORSE the QQQ's -26% forget about the multiple. The average returns, though, were as expected.  Given the above results, with an eye to the 2020 worst declines, there appears to be NO advantage to owning the outright ETFs. 3X ETFs do the same or better on paper.

What about the mechanics of my hypothetical $100,000 investment on the 12/31/2021 close?

Investing

The following compares characteristics of buying the above One X and 3X ETFs:

See the magic. How does buying 3X and arguably NINE TIMES the return COST LESS and RISK LESS than buying the 3X on margin*? Note also, somehow buying 3X ETFs increases your exposure with no debt and no chance of margin calls. Finally, note that the exposures are NOT exact. The $47,000 invested in 100 SPY at 10% earns $4700. The $13,967 at 30% earns "roughly" the same. 

And yes, your risk of loss IS great, SPXL and TQQQ drewdown -73% and -59%, respectively, but you paid cash and can carry the position through the decline with NO margin calls. Loading up on 300 shares each of the SPXL and TQQQ will guarantee a wild ride with only your original $100K at risk.

*At my broker, 3X ETFs are virtually not marginable, so you HAVE to pay cash.  An unnamed risk here, the TRUE  unmentioned risk, is what if the 3X ETFs default? Or get delisted? This happened to select volatility and commodity instruments but none with the history/pedigree of SPXL and TQQQ.  Also, I had to revise this post because my drawdown numbers were slightly off and they are now corrected. :-)

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@outlook.com to follow this blog and for additional information. 

© 2021 George Rahal.

They're BAAACK!

 Annuity hucksters are back with more style and less substance than ever.

Under the rubric of "Defined Outcome" you get anything but. Correction: some of your losses ARE defined by the huge unecessary fees you pay to put on such a ridiculous strategy. 

Index-linked annuity advertisements creep up like weeds whenever the stock market falls.

I believe these ads mislead and are harmful to your wealth. The above is a rough picture of the investment portion of a one year index-linked annuity contract. These expensive and opaque insurance contracts generally offer, for a 1 year or other term, a certain amount of "buffer" or "shield" from market declines along with a capped share of the gain if the market rises.

This "insurance" strategy can easily be created with exchange traded index options with total transparency, total liquidity, at extremely low cost with NO withdrawal fees and a far smaller cash deposit than any insurance purchase. 

The SPY, S&P 500 ETF, chart above shows the profits and loss from a "split strike with short put" options strategy.  It's something like the "split strike" strategy touted by Bernie Madoff but without the upside.  Whether Madoff is a tip off or not, this is the terrible strategy:

As of last night's (12/22/21) closing prices, with SPY at 470, (1000 shares = $470,000),
Buy 10 SPY 12/16/2022 (1-year) 470 (at-the-money) Puts for roughly $39.20 or $39,200
Sell 10 SPY 12/16/2022 (1-year) 420 (10% out-of-the-money) Puts for $23.875 or $23,875
Sell 10 SPY 12/16/2022 (1-year) 520 (10% in-the-money) Puts for $65.155 or $65,155

These trades combined will CREDIT your options account with +$49,830.
Total commissions at my broker for these trades are $20.85. 

The initial margin required for the 10 lot position according to my broker today is $116,510.

This is fully covered by your 1000 share long position which is the "reason" you are putting this hedging strategy on in the first place. 

With options you have full transparency with market prices available anytime the market is open.

You have total control! You can get out ANYTIME for the same $20.85 commissions.

There are NO withdrawal fees, no waiting periods, no hassle at all to get in or get out!

This $49+K credit is the "protection" against the loss of your real portfolio, which in this example, is the $470,000 invested in the SPY.  This example is slightly more than 10% but you can change your credit by adjusting the strike prices of your options.

Why is this strategy so bad? Look at the chart: your losses can be UNLIMITED and your gains are capped, the exact opposite what any investor wants. If you really do want protection, forget selling puts and just buy the at-the-money put. The "married put" is a pricey insurance policy that costs 11% of your portfolio and gives you total protection from the downside with 100% upside (except for the insurance premium) if the SPY rises.

The chart above is so bad that option traders don't even sell this strategy. You would be hard pressed to find the above options payoff chart online.  Its so bad that only annuity salesmen would sell it.

Feel free to post comments.

Disclaimer: Posts are for education only and not investment advice, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.

11 Trading Days Left in 2021

As the year turns, its time to prepare for the last trading day of 2021 and especially the 2021 year end close at 4PM* Friday December 31st!  Let's look at how my hypothetical Model Account in 2021 went:

This was obviously a lucky year.... or was it? Let's look the same trade in the extreme year of 2020.

Not such a good year. The $100K model account lost ALL its value, and then some, in the Covid March break and had to post maintenance margin (totalling $40+K, not shown). The true believer though ended up with a net double ($100K gain) at year-end.

What about a more "normal" year, like 2019?

In the first half, the model account was up $50K, stayed unch until November, and then rose another $50K, posting a $100K gain for the year. 

So WHAT IS? this model account that has SO much risk yet apparently so many gains. Its simply a small variation on the long stock index buy and hold-but with the leverage of futures. Short answer: just look at the S&P and Nasdaq charts!

ES and NQ Buy and Hold

This is a hypothetical futures account, funded with a hypothetical $100K, that hypothetically buys, on the last day of the year, at the close, one "red" March S&P 500 E-mini futures and one "red" March Nasdaq 100 E-mini futures contract. The initial margin requirement for this position is today roughly $40,000. You post $100K, so you have $60,000 margin excess ($60K losses before you get a margin call).

As I write, noonish December 16th, 2021 the "red" March 2023 S&P 500 E-Mini, symbol ESH23, is offerred at 4740.00 and the "red" March 2023 Nasdaq 100 E-Mini, symbol NQH23, is estimated at 16,000. Both contracts should have firm offers by the December 31st last trading day of the year. 

At current pricing, ESH23 has a notional value of (4740 x $50=) $237,000. And the NQH23 is at (16,000 x $20)=$320,000. Being long at these prices would give ($237,000+$320,000)=$557,000 of index exposure (read risk) in your futures account. 

My broker's current initial margin requirement for the S&P E-Mini is about $16,000 and the Nasdaq E-Mini is $24,000. Thus the total margin requirement for this hypothetical account is roughly $40,000. The $100K deposit would leave an excess of $60,000 in the account.

Outlook

2022 appears to be a pivotal year with the first signs of inflation, the hyper politics of the mid-term elections and the twists and turns of the Covid pandemic. But we have HAD many pivotal years, especially in the Covid infected 2020. So 2022, despite all the hemming and hawing, may just be another year in the market. 

Happy Christmas, Happy 2022 and Happy Trading!

*"Red" means, in commodity talk, the next year's month not the upcoming month. Thus, today's "red" March means March of 2023, not the upcoming 2022. The March 2023 contract is nearest contract to trade during the entire year 2022. There are many details involved in the reasoning behind this kind of trading account. For more complete information showing markets and returns feel free to download my spreadsheet here. Note also, these are hypothetical accounts only.  

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@outlook.com to follow this blog and for additional information. 

© 2021 George Rahal.

Commodities Dinged but Still UP 20% YTD in November

Just as inflation panic began to spread, commodity prices solidly fell -7% in November while holding strong +20% gains year-to-date.

GSCI=S&P GSCI Commodity Excess Return Index

BCOM=Bloomberg Excess Return Commodity Index

The declines were widespread as the following table of the BCOM components shows:

The biggest gainers were energy. Note precious metals and a few agriculturals are down on the year. Note also crudes gave up substantial gains in November.

*Excess Return indexes are futures price returns without the interest on futures collateral included in Total Return indices,

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@outlook.com to follow this blog and for additional information. 

© 2021 George Rahal.

The 10 - 20 Strategy

I had a unique commodity futures client who had a system for trading that would buy only 10 year lows or even 20 year lows.  He no longer trades commodities. The thought was that 10 year lows were LOW. 

Aside from the obvious scarcity of 10 year lows (it was definately a long-term generational strategy) we have to consider the mechanics of this trade. Starting, for convenience, in 1991, the inception date of the Bloomberg Commodity Index, commods have had roughly 5 long-term bull runs. In the same period there were maybe four bear runs. Here's the long-term chart:

BBG CI=Bloomberg Commodity Excess Return Index since 1/2/1991 inception. 

If nothing else,  for the 30 year history of the index, there are very few chances to buy at 10 year lows. The 10 year low is not available to a buyer until 2015. And then, it was a loser until 2020! Likewise, selling 10 year highs, with one major exception (2008), have been losing trades. Today's market is at the lower end of the today's 10 year range.

The 20 year range offers even fewer opportunity, which may be expected from an index with a 30 year lifetime. Until 2020 there was maybe one opportunity to buy a 20 year low. 

BBG CI=Bloomberg Commodity Excess Return Index since 1/2/1991 inception. 

The Bloomberg Energy Index shows much the same.

Energy=Bloomberg Energy Excess Return Index since 1/2/1991 inception.

There are limited opportunities to sell the 10 year high, and many, since 2009, chances to buy the 10 year lows-albiet unprofitable.  

The ag markets appear more balanced, with very limited sell opportunities. Except for recent Covid trade history, 10 year buys were limited too.

Agriculture=Bloomberg Agriculture Excess Return Index since 1/2/1991 inception.

Precious Metals, despite the more rounded charts, have actually even fewer trading opportunities at 10 year extremes.

Agriculture=Bloomberg Agriculture Excess Return Index since 1/2/1991 inception.

The 10-20 year trade is a bust. It may be an occasional wealth builder but the entries and exits are so few and far between, they are hardly worth waiting for. In hindsight, Covid has presented a rare opportunity indeed. 

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@gmail.com to follow this blog and for additional information. 

© 2021 George Rahal.

Commodities YTD Up 30%-50%

 While the major commodity indexes are YTD up 30%-50%,

the sector returns reveal more about this year's price behavior. 

The steady march of oil prices from extraordinary lows plus covid scarcity has underpinned the 180% rise in energy. Remember, roughly one year ago the crude oil price was BELOW ZERO! The 20% rise in agriculture markets is actually reflective of the "almost-post" Covid demand shock. Gold has been flat to down, to spite the inflation hedge talkers.  And bitcoin, for good measure, is giving us the price and value of vapor - right in line with today's GOP politics. 

As the economy normalizes, as fewer hold out against vaccinations, as rationality returns to American political discourse, markets WILL moderate. Or not. It's a bet on future conditions, especially the future of rationality, science and democracy. 

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@gmail.com to follow this blog and for additional information. 

© 2021 George Rahal.

Selling Option Premium

Had an interesting conversation with an old classmate who, in his apparent retirement, has taken a liking to selling options. I love TD Ameritrade and admire TDA's educational work-far better than almost ALL investment research online. BUT, we have to be honest here, option income a siren song.

If option writing was such a good strategy, option income funds would be such good funds*. Well, what do you think? First, lets try and find any option income fund (they were popular in the 1980s and not so much, today). 

Eaton Vance**, a venerable old-money fund manager, runs a handful of option writing funds. Let's look at them over the long-term:

SPY = SPDR S&P 500 ETF Trust (SPY)

ETV = Eaton Vance Tax-Managed Buy-Write Opportunities Fund (ETV)

ETB = Eaton Vance Tax-Managed Buy-Write Income Fund (ETB)

ETW = Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund (ETW)

EXD = Eaton Vance Tax-Advantaged Bond and Option Strategies Fund (EXD)

Source: Yahoo Finance

With the S&P up 500%, the option funds, up 300-400% all lag, 

Almost sixteen years seems like a good period to review the option writing strategy. Was this cherry-picked? Well, it so happens that 4/27/2005 was the first Yahoo price date for the earliest fund, the flagship ETB fund. The others started trading after that date. This is a misleading yet truthful picture of these funds. Of course, the SPY has been trading long before that date and is used, as always, for the comparison benchmark.

Let's look at a true comparison, using the first date in common for all five funds. 6/25/2010 is the first date in Yahoo for the youngest EXD blended tax advantaged bond and option fund:

The roughly ten-year period didn't change much. The S&P still beat option funds by 150% or more. So, did we cherry-pick again? Here's the five year period:

The S&P still beats by roughly 100%. Let's look at the 2020-Present time period. Here, the results narrow.

With EXD up 33% and SPY up 44%. the lead narrows to less than 10 points. Finally, lets look at what these funds did for us lately-the year-to-date 12/31/2020 to 10/15/2021 numbers:

NOW you can accuse me of cherry-picking! The SPY is smack dab in the middle of the Eaton Vance option fund returns! Ranging from 26% to 15%, the EV funds comp well with the SPY 20% ytd gain. 

As one can see, you have to work hard to get option writing to beat the S&P.

*The idea here being that if the smartest, richest traders in the world, public fund managers, can't do it. Nobody can!  The reason why so many fund manager's do worse than internet chatroom traders is because fund manager results are audited!

**While it may seem so, I am NOT picking on Eaton Vance. Option income is a tough strategy, especially, in bull markets. You keep giving up gains for pittance. Also, EV is one of the oldest managers out there with old money clients who primarily want to keep their money. These are wonderful gains, where many other managers have given up on option income funds. 

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@gmail.com to follow this blog and for additional information. 

© 2021 George Rahal.

Covid Deaths and Cases Per 100,000 Population

As Covid new reported cases fall, it may be time to review the totality of the pandemic. Below are the "rankings" of per capita Covid cases and Covid deaths by state as of 10/13/2021. Read and weep:

Of the four most populous states, red Texas and Florida cases are significantly worse than blue California and New York.

Source: Johns Hopkins University

In per capita deaths, New York ranks lower (46th at 287 per 100K) than Florida (41st at 267) and Texas (32nd at 235) and California's surprising high ranking (16th at 178).

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Contact gdrahal@outlook.com for additional information.. 
© 2021 George Rahal.

Third Quarter 2021 Commodity Index Review

In the last days of September 2021, the Blomberg Commodity Index finally rose ABOVE its initial value of 100 set in 1991!

3 Months In The Life - Nasdaq 100 Futures

 Here we go:

Source: TDAmeritrade.com ThinkorSwim charts

Sell in May and go away

Doesn't really work today!

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@gmail.com to follow this blog and for additional information. 

© 2021 George Rahal.

The March to 100

 The chart for December WTI Crude Oil is shown below:

Source: thinkorswim on tdameritrade.com

It takes 10 years to show where crude oil WAS and where its GOING. The march to 100 may be mostly due to supply destruction on the heels of years of financial and demand destruction in the energy sector. 

Source: ARC Energy Research

Even if demand does not completely return to pre-Covid levels, the supply imbalance, the time it will take to restore production and clear markets, is likely to press prices back above $100.  

My contract of choice is the NYMEX December 2021 WTI Crude Oil futures which is trading at $70.71 as I write.

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Request to gdrahal@gmail.com to follow this blog and additional information.. 
© 2021 George Rahal.

Crime Rate per 100,000 Population by State

While alarming headlines on rising crime become prominent amidst autocratic politics, a look at the most recent actual FBI data may help sort out the claims and any confusion. 

Here are the ten worst states for crime per 100,000 population:

Lets not nitpick. Looking at the most populous states, here's how they rank:

Source:https://ucr.fbi.gov/crime-in-the-u.s/2019/crime-in-the-u.s.-2019/topic-pages/tables/table-5

Conclusions:

Today's crime knows no politics. Who knew Alaska and New Mexico had the worst crime rates in the nation? The South, with 7 out of 10 of the worst, has its full share of bad crime. 

The most populous states have higher crime rates than the national average EXCEPT FOR NY, PA, OH and GA. Beware politician claims to the contrary!

Why this matters?  While a markets blog, good government and accurate PERCEPTIONS, are essential to proper functioning of the markets. With the rise of autocratic politicians (read Florida and Texas) we all can use a good dose of factual understanding. 

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Note my excel data spreadsheets are available upon request. Send request to gdrahal@gmail.com to follow this blog and additional information.. 
© 2021 George Rahal.

Commodities Rise in May

Commodities continued rising in May with both major indexes up almost 3% for the month yet still below April's highs.

Year to date, the Bloomberg Commodity Index and the S&P Dow GSCI are up 17% and 23%, respectively. The gains were broad based. Click here to see detailed returns.

Fortunately the dismal outlook may have changed. Virus accelerated demand destruction, supply dislocations, price wars and geopolitics have given way to recovery, increased demand and supply scarcity-raising prices.

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Note my excel data spreadsheets are available upon request. Send request to gdrahal@gmail.com to follow this blog and additional information.. 
© 2021 George Rahal.

Vaccinations by State

With vaccines readily available, social, economic and political attention is focused on the safe return to normal which can be directly measured by the percent of population fully vaccinated!  Below is the latest, as of 5/22/2021, from Johns Hopkins University:

The two other views of the same data are presented below. 

Barchart

The bar chart makes state success rates perfectly clear. Longer bars are better! Go Maine!

Note Florida and Texas are in the lower half of the United States. Needless to say, California, New York and, especially, New Jersey?!, rank in the upper to near highest in the percent of population vaccinated. The numerical table, as of 5/22/2021, is presented below.

Numerical Table

Conclusion

The national average today is 39%! Not nearly enough to give us the mythical herd immunity that will protect us all. But, sadly, vaccination rates are falling.

In JHU's latest data, TX ranks 40th in the nation while FL is 34th and both are below the national average. CA at 19th, NY 11th and NJ 6th (???!) are way above the national average. 

Government by the people has a responsibility to care for the people. One can wonder how perception and reality can vary so much. 

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Note my excel data spreadsheets are available upon request. Send request to gdrahal@gmail.com for data and/or to follow this blog. 
© 2021 George Rahal.

 

Covid Revisited

Below are the latest total number of per capita confirmed cases of Covid by state as of 5/15/2021 from Johns Hopkins University. 

California (ranked 19th) and New York (35th) governors are under fire. Texas (24th) and Florida (34th) governors are taking victory laps. But, where is the victory?

Shorter bars are better.

Here's the same data in table form:

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@gmail.com to follow this blog. 
© 2021 George Rahal.

Colonial Pipeline and the Indexes

As an indexer I hardly ever say trading is fun but today may be an exception. Rarely are markets faced with a very likely short-lived binary contained emergency.  Below are four exciting thinkorswim year-to-date chart screenshots for the micro Dow 30, S&P 500, Nasdaq 100, and Russell 2000 futures contracts. 

The Indexes

Symbol MYMM21, Micro Dow Jones 30 Industrial Average June 2021 futures down* 25% from its intraday all-time high three days ago.

Symbol MESM21, Micro S&P 500 June 2021 Index futures contract is down* about 25% from its all-time high three days ago.

Symbol MNQM21, Micro Nasdaq 100 Index June 2021 futures contract is down* about 60% from its all-time high ten days ago.

And, symbol M2KM21, Micro Russell 2000 June 2021 index futures contract is down* 50% from it all time high 43 days ago!

*Note: these are not absolute down moves, these are the drawdowns measured against the range of the yearly high minus the yearly low. In other words, these measure how much the market has given up its move for the year-to-date. 100% down would take the market back to its yearly low.

These four ARE the major "broad" indexes that all money managers have such a hard time trying to beat. The last three days, as do all large breaks, present a great opportunity for active managers to beat the indexes. But how significant IS this sharp market break?

While the Dow and S&P just take us back to the second week in April (that is how large the rally WAS) the much more volatile Nasdaq is now at levels seen as far back as the second week of January! Same with the Russell 2000 index. The January 2021 highs are about where these two indexes are trading as I write. Those who thought they missed the move, well, they didn't. 

Colonial Pipeline

What largely precipitated this break is the Colonial gasoline pipeline interruption. When I was an energy trader, we used to darkly opine that a three day blackout in electricity or gas supply would shut down a city or a state.  The headline pictures of today's gas lines throughout the east cost are tribute to that. But what is also true is that as quickly as this went sideways is how quickly this can go back up! 

The pipeline interruption may be very short lived. I mean HOW incompetent ARE the IT guys and managers at Colonial? Darkside itself made a conciliatory statement. The pipe can be back even before the weekend and, if so, my bet (and I'm not really a betting guy) is market breaks will be very short lived as well.

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Please request to follow this blog by email to gdrahal@gmail.com.

© 2021 George Rahal.

Commodity Time Machine - April 2021

After April's 8% commodity rally, one may say commodities are bullish. It might be a good time to see exactly where we, and commodities, stand long-term. 

Bloomberg Commodity Index

GDP Recovery or 8MM Out of Work -- Which is it?

 Today's 9/30/2021 Wall Street Journal front page headline proudly declares 

WE'RE BAAACK! Implying all's well in the US economy and stimulus is not needed.

Sadly, buried in the 4/3/21 front page of the same paper and contradicting THAT headline is the fact that 8MM PEOPLE are STILL OUT OF WORK!

I don't know how to reconcile the two reports without being cynical or accusatory.

Disclaimer: Posts are for entertainment & education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. To follow this blog email FOLLOW to VistaMktResearch@gmail.com.

© 2021 George Rahal.

Top Mutual Funds - Ranked for Persistence

At the turn of the quarter, its time again to review my fund positions but this time with a new perspective, courtesy of Vanguard! Vanguard offers on their website a fund list* of cumulative returns that anyone can find here. Below are the top Vanguard Funds ranked in order by 3 year returns.

Vanguard Fund 3 Year Rankings as of 3/31/2021

Why the 3 year baseline? It includes 2018's down year, 2019's up year and the wild ride of 2020 to present. 

Results

How interesting that one fund, the U. S. Growth Fund, comes in number ONE for the 3, 5 and 10 year periods. It may or may not be Vanguard's best equity fund but someone has to be number one! Note that the TOP RANK DID NOT PERSIST for the 1 year, 3 month nor 1 month period. In fact, This was the WORST fund, ranked 37 out of 37, for the 3 month period and the second worst fund for the month of March! 14 Funds had HIGHER average ranks than U. S. Growth. 

The fund with the HIGHEST average ranking, at 11.3, was Diversified Equity. This too was in the lower half of funds for the 2021 rankings. The top funds for the first quarter look very different:

All 3 mo. 2021 winners were highly ranked for the 1 year period (it may be the reason for the 1 yr. ranking) but all ranked in the lower half for prior periods. The best average ranking for all periods was the Extended Market Index, which likewise, ranked at the bottom for 1 month!

Conclusion

Its like you can't win trying to pick or guess which fund to buy. Let's look at my benchmark, as usual, the flagship Vanguard 500 Index Fund:

With a 14.2 batting average (in the top third or so) and a no worse than 26 ranking, it has more persistence than most and may be as good as any. 

*Why Vanguard? Scale, fees and a business model aligned with the investor. 

This post reports Vanguard's universe of 53 equity funds' cumulative returns for 1 mo., 3mo., 1 yr., 3 yr., 5yr and 10 year periods. Only 37 funds have 10 year periods, so I limited ranking to those funds. Caveat's include the following: no actual returns are shown and the distribution of returns can make rankings misleading, especially if they are bunched, then, the rankings within the bunch have very little meaning. Also, Vanguard includes select funds in their list, there are many others in and out of Vanguard. Fund composition and styles can change while their names may not. This makes period to period comparisons difficult or invalid. Finally, most funds have overlapping positions, especially to the 500 Index fund, and their returns may not be distinct. 

Source: Vanguard.com

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Please follow this blog by email.

© 2021 George Rahal.

 

*Why use Vanguard as a baseline for fund returns? Well they are, in my opinion one of the only managers with a business model made for investors. Their mission is aligned with investors not fund owners or fund managers, their size lets them hire the best people, their fees are the lowest in the space (don't be fooled by phony zero commision newcomers).